1. G.R. No.

135362 December 13, 1999

HEIRS OF AUGUSTO L. SALAS, JR., namely:
TERESITA D. SALAS for herself and as legal
guardian of the minor FABRICE CYRILL D.
SALAS, MA. CRISTINA S. LESACA, and
KARINA TERESA D. SALAS, petitioners, vs.
LAPERAL REALTY CORPORATION, ROCKWAY
REAL ESTATE CORPORATION, SOUTH RIDGE
VILLAGE, INC., MAHARAMI DEVELOPMENT
CORPORATION,
Spouses
THELMA
D.
ABRAJANO
and
GREGORIO
ABRAJANO,
OSCAR DACILLO, Spouses VIRGINIA D. LAVA
and RODEL LAVA, EDUARDO A. VACUNA,
FLORANTE DE LA CRUZ, JESUS VICENTE B.
CAPELLAN, and the REGISTER OF DEEDS
FOR LIPA CITY, respondents.

Meantime, respondent Laperal Realty subdivided

the land of Salas, Jr. and sold subdivided portions
thereof to respondents Rockway Real Estate
Corporation and South Ridge Village, Inc. on
February 22, 1990; to respondent spouses
Abrajano and Lava and Oscar Dacillo on June 27,
1991; and to respondents Eduardo Vacuna,
Florante de la Cruz and Jesus Vicente Capalan on
June 4, 1996 (all of whom are hereinafter referred
to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas,
Jr. filed in the Regional Trial Court of Lipa City a
Complaint 6 for declaration of nullity of sale,
reconveyance,
cancellation
of
contract,
accounting
and
damages
against
herein
respondents which was docketed as Civil Case
No. 98-0047.

DE LEON, JR., J.:

Before us is a petition for review on certiorari of
the Order 1 of Branch 85 of the Regional Trial
Court of Lipa City 2dismissing petitioners'
complaint 3 for
rescission
of
several
sale
transactions involving land owned by Augusto L.
Salas, Jr., their predecessor-in-interest, on the
ground that they failed to first resort to
arbitration.
Salas, Jr. was the registered owner of a vast tract
of land in Lipa City, Batangas spanning 1,484,354
square meters.
On May 15, 1987, he entered into an OwnerContractor Agreement 4 (hereinafter referred to
as the Agreement) with respondent Laperal
Realty Corporation (hereinafter referred to as
Laperal Realty) to render and provide complete
(horizontal) construction services on his land.
On September 23, 1988, Salas, Jr. executed a
Special Power of Attorney in favor of respondent
Laperal Realty to exercise general control,
supervision and management of the sale of his
land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the
morning for a business trip to Nueva Ecija. He
never returned.
On August 6, 1996, Teresita Diaz Salas filed with
the Regional Trial Court of Makati City a verified
petition for the declaration of presumptive death
of her husband, Salas, Jr., who had then been
missing for more than seven (7) years. It was
granted on December 12, 1996. 5

On April 24, 1998, respondent Laperal Realty filed

a
Motion
to
Dismiss 7 on the ground that petitioners failed to
submit their grievance to arbitration as required
under Article VI of the Agreement which provides:
Art. VI. ARBITRATION.
All cases of dispute between CONTRACTOR
and OWNER'S representative shall be
referred to the committee represented by:
a. One representative of the OWNER;
b. One representative
CONTRACTOR;

of

the

c. One representative acceptable to

both OWNER and CONTRACTOR. 8
On May 5, 1998, respondent spouses Abrajano
and Lava and respondent Dacillo filed a Joint
Answer
with
Counterclaim
and
Crossclaim 9 praying for dismissal of petitioners'
Complaint for the same reason.
On August 9, 1998, the trial court issued the
herein assailed Order dismissing petitioners'
Complaint for non-compliance with the foregoing
arbitration clause.
Hence this petition.
Petitioners argue, thus:

The petitioners' causes of action did not

emanate
from
the
Owner-Contractor
Agreement.
The petitioners' causes of action for
cancellation of contract and accounting are
covered by the exception under the
Arbitration Law.
Failure to arbitrate is not a ground for
dismissal. 10
In a catena of cases 11 inspired by Justice
Malcolm's provocative dissent in Vega v. San
Carlos Milling Co. 12, this Court has recognized
arbitration
agreements
as
valid,
binding,
enforceable and not contrary to public policy so
much so that when there obtains a written
provision for arbitration which is not complied
with, the trial court should suspend the
proceedings and order the parties to proceed to
arbitration in accordance with the terms of their
agreement 13. Arbitration is the "wave of the
future" in dispute resolution. 14 To brush aside a
contractual agreement calling for arbitration in
case of disagreement between parties would be a
step backward. 15
Nonetheless, we grant the petition.
A submission to arbitration is a contract. 16 As
such, the Agreement, containing the stipulation
on arbitration, binds the parties thereto, as well
as their assigns and heirs. 17 But only they.
Petitioners, as heirs of Salas, Jr., and respondent
Laperal Realty are certainly bound by the
Agreement. If respondent Laperal Realty had
assigned its rights under the Agreement to a third
party, making the former, the assignor, and the
latter, the assignee, such assignee would also be
bound by the arbitration provision since
assignment involves such transfer of rights as to
vest in the assignee the power to enforce them to
the same extent as the assignor could have
enforced them against the debtor 18 or in this
case, against the heirs of the original party to the
Agreement. However, respondents Rockway Real
Estate Corporation, South Ridge Village, Inc.,
Maharami Development Corporation, spouses
Abrajano, spouses Lava, Oscar Dacillo, Eduardo
Vacuna, Florante de la Cruz and Jesus Vicente
Capellan are not assignees of the rights of
respondent Laperal Realty under the Agreement
to develop Salas, Jr.'s land and sell the same.
They are, rather, buyers of the land that
respondent Laperal Realty was given the
authority to develop and sell under the

Agreement. As such, they are not "assigns"

contemplated in Art. 1311 of the New Civil Code
which provides that "contracts take effect only
between the parties, their assigns and heirs".
Petitioners claim that they suffered lesion of more
than one-fourth (1/4) of the value of Salas, Jr.'s
land when respondent Laperal Realty subdivided
it and sold portions thereof to respondent lot
buyers. Thus, they instituted action 19 against
both respondent Laperal Realty and respondent
lot buyers for rescission of the sale transactions
and reconveyance to them of the subdivided lots.
They argue that rescission, being their cause of
action, falls under the exception clause in Sec. 2
of Republic Act No. 876 which provides that "such
submission [to] or contract [of arbitration] shall
be valid, enforceable and irrevocable, save upon
such grounds as exist at law for the revocation of
any contract".
The petitioners' contention is without merit. For
while rescission, as a general rule, is an arbitrable
issue, 20 they impleaded in the suit for rescission
the respondent lot buyers who are neither parties
to the Agreement nor the latter's assigns or heirs.
Consequently, the right to arbitrate as provided
in Article VI of the Agreement was never vested
in respondent lot buyers.
Respondent Laperal Realty, as a contracting party
to the Agreement, has the right to compel
petitioners to first arbitrate before seeking
judicial relief. However, to split the proceedings
into arbitration for respondent Laperal Realty and
trial for the respondent lot buyers, or to hold trial
in abeyance pending arbitration between
petitioners and respondent Laperal Realty, would
in effect result in multiplicity of suits, duplicitous
procedure and unnecessary delay. On the other
hand, it would be in the interest of justice if the
trial court hears the complaint against all herein
respondents and adjudicates petitioners' rights as
against theirs in a single and complete
proceeding.
WHEREFORE, the instant petition is hereby
GRANTED. The Order dated August 19, 1998 of
Branch 85 of the Regional Trial Court of Lipa City
is hereby NULLIFIED and SET ASIDE. Said court is
hereby ordered to proceed with the hearing of
Civil Case No. 98-0047.
Costs against private respondents. SO ORDERED.
2. G.R. No. 136154

February 7, 2001
2

DEL MONTE CORPORATION-USA, PAUL E.

DERBY,
JR.,
DANIEL
COLLINS and LUIS
HIDALGO, petitioners,
vs.
COURT
OF
APPEALS, JUDGE BIENVENIDO L. REYES in his
capacity as Presiding Judge, RTC-Br. 74, Malabon,
Metro
Manila, MONTEBUENO
MARKETING,
INC., LIONG LIONG C. SY and SABROSA
FOODS, INC.,respondents.
BELLOSILLO, J.:
This Petition for Review on certiorari assails the
17 July 1998 Decision1 of the Court of Appeals
affirming the 11 November 1997 Order 2 of the
Regional
Trial
Court
which
denied
petitioners' Motion to Suspend Proceedings in
Civil Case No. 2637-MN. It also questions the
appellate court's Resolution3 of 30 October 1998
which
denied
petitioners' Motion
for
Reconsideration.
On 1 July 1994, in a Distributorship Agreement,
petitioner Del Monte Corporation-USA (DMC-USA)
appointed
private
respondent
Montebueno
Marketing, Inc. (MMI) as the sole and exclusive
distributor of its Del Monte products in the
Philippines for a period of five (5) years,
renewable for two (2) consecutive five (5) year
periods with the consent of the parties. The
agreement provided, among others, for an
arbitration clause which states
12. GOVERNING LAW AND ARBITRATION4
This Agreement shall be governed by the
laws of the State of California and/or, if
applicable, the United States of America.
All disputes arising out of or relating to this
Agreement or the parties' relationship,
including the termination thereof, shall be
resolved by arbitration in the City of San
Francisco, State of California, under the
Rules
of
the
American
Arbitration
Association. The arbitration panel shall
consist of three members, one of whom
shall be selected by DMC-USA, one of
whom shall be selected by MMI, and third
of whom shall be selected by the other two
members
and
shall
have
relevant
experience in the industry x x x x
In October 1994 the appointment of private
respondent MMI as the sole and exclusive
distributor of Del Monte products in the
Philippines was published in several newspapers
in the country. Immediately after its appointment,
private respondent MMI appointed Sabrosa Foods,

Inc. (SFI), with the approval of petitioner DMCUSA, as MMI's marketing arm to concentrate on
its marketing and selling function as well as to
manage its critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI
and MMI's Managing Director Liong Liong C. Sy
(LILY SY) filed a Complaint5 against petitioners
DMC-USA, Paul E. Derby, Jr., 6 Daniel Collins7 and
Luis Hidalgo,8 and Dewey Ltd.9before the Regional
Trial Court of Malabon, Metro Manila. Private
respondents predicated their complaint on the
alleged violations by petitioners of Arts.
20,10 2111 and 2312 of the Civil Code. According to
private
respondents,
DMC-USA
products
continued to be brought into the country by
parallel importers despite the appointment of
private respondent MMI as the sole and exclusive
distributor of Del Monte products thereby causing
them great embarrassment and substantial
damage. They alleged that the products brought
into the country by these importers were aged,
damaged, fake or counterfeit, so that in March
1995 they had to cause, after prior consultation
with Antonio Ongpin, Market Director for Special
Markets of Del Monte Philippines, Inc., the
publication of a "warning to the trade" paid
advertisement in leading newspapers. Petitioners
DMC-USA and Paul E. Derby, Jr., apparently upset
with
the
publication,
instructed
private
respondent MMI to stop coordinating with Antonio
Ongpin and to communicate directly instead with
petitioner DMC-USA through Paul E. Derby, Jr.
Private
respondents
further
averred
that
petitioners
knowingly
and
surreptitiously
continued to deal with the former in bad faith by
involving disinterested third parties and by
proposing solutions which were entirely out of
their control. Private respondents claimed that
they had exhausted all possible avenues for an
amicable resolution and settlement of their
grievances; that as a result of the fraud, bad
faith, malice and wanton attitude of petitioners,
they should be held responsible for all the actual
expenses incurred by private respondents in the
delayed shipment of orders which resulted in the
extra handling thereof, the actual expenses and
cost of money for the unused Letters of Credit
(LCs) and the substantial opportunity losses due
to
created
out-of-stock
situations
and
unauthorized shipments of Del Monte-USA
products to the Philippine Duty Free Area and
Economic zone; that the bad faith, fraudulent
acts and willful negligence of petitioners,
motivated by their determination to squeeze
private respondents out of the outstanding and
3

ongoing Distributorship Agreement in favor of

another party, had placed private respondent LILY
SY on tenterhooks since then; and, that the
shrewd and subtle manner with which petitioners
concocted imaginary violations by private
respondent MMI of the Distributorship Agreement
in order to justify the untimely termination
thereof was a subterfuge. For the foregoing,
private respondents claimed, among other reliefs,
the payment of actual damages, exemplary
damages, attorney's fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to
Suspend Proceedings13 invoking the arbitration
clause
in
their
Agreement with
private
respondents.1wphi1.nt
In a Resolution14 dated 23 December 1996 the
trial
court
deferred
consideration
of
petitioners' Motion to Suspend Proceedings as the
grounds alleged therein did not constitute the
suspension of the proceedings considering that
the action was for damages with prayer for the
issuance of Writ of Preliminary Attachment and
not on the Distributorship Agreement.
On 15 January 1997 petitioners filed a Motion for
Reconsideration to which
respondents filed
theirComment/Opposition. On 31 January 1997
petitioners
filed
their Reply.
Subsequently,
private respondents filed anUrgent Motion for
Leave to Admit Supplemental Pleading dated 2
April 1997. This Motion was admitted, over
petitioners' opposition, in an Order of the trial
court dated 27 June 1997.
As a result of the admission of the Supplemental
Complaint, petitioners filed on 22 July 1997
a Manifestationadopting their Motion to Suspend
Proceedings of 17 October 1996 and Motion for
Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend
Proceedings was denied by the trial court on the
ground that it "will not serve the ends of justice
and to allow said suspension will only delay the
determination of the issues, frustrate the quest of
the parties for a judicious determination of their
respective claims, and/or deprive and delay their
rights to seek redress."15
On appeal, the Court of appeals affirmed the
decision of the trial court. It held that the alleged
damaging acts recited in the Complaint,
constituting petitioners' causes of action,
required the interpretation of Art. 21 of the Civil
Code16 and
that
in
determining
whether

petitioners had violated it "would require a full

blown trial" making arbitration "out of the
question."17 Petitioners' Motion
for
Reconsideration of the affirmation was denied.
Hence, thisPetition for Review.
The crux of the controversy boils down to
whether the dispute between the parties
warrants an order compelling them to submit to
arbitration.
Petitioners contend that the subject matter of
private respondents' causes of action arises out
of or relates to the Agreement between
petitioners and private respondents. Thus,
considering that the arbitration clause of the
Agreement provides that all disputes arising out
of or relating to the Agreement or the parties'
relationship, including the termination thereof,
shall be resolved by arbitration, they insist on the
suspension of the proceedings in Civil Case No.
2637-MN as mandated by Sec. 7 of RA 87618
Sec. 7. Stay of Civil Action. If any suit or
proceeding be brought upon an issue
arising out of an agreement providing for
arbitration thereof, the court in which such
suit or proceeding is pending, upon being
satisfied that the issue involved in such
suit or proceeding is referable to
arbitration, shall stay the action or
proceeding until an arbitration has been
had in accordance with the terms of the
agreement. Provided, That the applicant
for the stay is not in default in proceeding
with such arbitration.
Private respondents claim, on the other hand,
that their causes of action are rooted in Arts. 20,
21 and 23 of the Civil Code,19 the determination
of which demands a full blown trial, as correctly
held by the Court of Appeals. Moreover, they
claim that the issues before the trial court were
not joined so that the Honorable Judge was not
given the opportunity to satisfy himself that the
issue involved in the case was referable to
arbitration. They submit that, apparently,
petitioners filed a motion to suspend proceedings
instead of sending a written demand to private
respondents to arbitrate because petitioners were
not sure whether the case could be a subject of
arbitration. They maintain that had petitioners
done so and private respondents failed to answer
the demand, petitioners could have filed with the
trial court their demand for arbitration that would
warrant a determination by the judge whether to
refer the case to arbitration. Accordingly, private
4

respondents assert that arbitration is out of the

question.
Private respondents further contend that the
arbitration clause centers more on venue rather
than on arbitration. They finally allege that
petitioners filed their motion for extension of time
to file this petition on the same date 20petitioner
DMC-USA filed a petition to compel private
respondent MMI to arbitrate before the United
States District Court in Northern California,
docketed as Case No. C-98-4446. They insist that
the filing of the petition to compel arbitration in
the United States made the petition filed before
this Court an alternative remedy and, in a way,
an abandonment of the cause they are fighting
for her in the Philippines, thus warranting the
dismissal of the present petition before this
Court.
There is no doubt that arbitration is valid and
constitutional in our jurisdiction. 21 Even before the
enactment of RA 876, this Court has
countenanced the settlement of disputes through
arbitration. Unless the agreement is such as
absolutely to close the doors of the courts against
the parties, which agreement would be void, the
courts will look with favor upon such amicable
arrangement and will only interfere with great
reluctance to anticipate or nullify the action of
the arbitrator.22 Moreover, as RA 876 expressly
authorizes arbitration of domestic disputes,
foreign arbitration as a system of settling
commercial disputes was likewise recognized
when the Philippines adhered to the United
Nations "Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of
1958" under the 10 May 1965 Resolution No. 71
of the Philippine Senate, giving reciprocal
recognition
and
allowing
enforcement
of
international arbitration agreements between
parties of different nationalities within a
contracting state.23
A careful examination of the instant case shows
that the arbitration clause in the Distributorship
Agreement between petitioner DMC-USA and
private respondent MMI is valid and the dispute
between the parties is arbitrable. However, this
Court must deny the petition.
The Agreement between petitioner DMC-USA and
private respondent MMI is a contract. The
provision to submit to arbitration any dispute
arising therefrom and the relationship of the
parties is part of that contract and is itself a
contract. As a rule, contracts are respected as the

law between the contracting parties and produce

effect as between them, their assigns and
heirs.24 Clearly, only parties to the Agreement,
i.e., petitioners DMC-USA and its Managing
Director for Export Sales Paul E. Derby, Jr., and
private respondents MMI and its Managing
Director LILY SY are bound by the Agreement and
its arbitration clause as they are the only
signatories thereto. Petitioners Daniel Collins and
Luis Hidalgo, and private respondent SFI, not
parties to the Agreement and cannot even be
considered assigns or heirs of the parties, are not
bound by the Agreement and the arbitration
clause
therein.
Consequently,
referral
to
arbitration in the State of California pursuant to
the arbitration clause and the suspension of the
proceedings in Civil Case No. 2637-MN pending
the return of the arbitral award could be called
for25 but only as to petitioners DMC-USA and Paul
E. Derby, Jr., and private respondents MMI and
LILY SY, and not as to the other parties in this
case. This is consistent with the recent case
of Heirs of Augusto L. Salas, Jr. v. Laperal Realty
Corporation,26 which superseded that of Toyota
Motor Philippines Corp. v. Court of Appeals.27
In Toyota, the Court ruled that "[t]he contention
that the arbitration clause has become
dysfunctional because of the presence of third
parties
is
untenable"
ratiocinating
that
"[c]ontracts are respected as the law between the
contracting parties"28 and that "[a]s such, the
parties are thereby expected to abide with good
faith
in
their
contractual
29
commitments." However, in Salas, Jr., only
parties to the Agreement, their assigns or heirs
have the right to arbitrate or could be compelled
to arbitrate. The Court went further by declaring
that in recognizing the right of the contracting
parties to arbitrate or to compel arbitration, the
splitting of the proceedings to arbitration as to
some of the parties on one hand and trial for the
others on the other hand, or the suspension of
trial pending arbitration between some of the
parties, should not be allowed as it would, in
effect, result in multiplicity of suits, duplicitous
procedure and unnecessary delay. 30
The object of arbitration is to allow the
expeditious determination of a dispute. 31 Clearly,
the issue before us could not be speedily and
efficiently resolved in its entirety if we allow
simultaneous arbitration proceedings and trial, or
suspension
of
trial
pending
arbitration.
Accordingly, the interest of justice would only be
served if the trial court hears and adjudicates the
case in a single and complete proceeding. 32
5

WHEREFORE, the petition is DENIED. The

Decision of the Court of Appeals affirming the
Order of the Regional Trial Court of Malabon,
Metro Manila, in Civil Case No. 2637-MN, which
denied
petitioners' Motion
to
Suspend
Proceedings, is AFFIRMED. The Regional Trial
Court concerned is directed to proceed with the
hearing of Civil Case No. 2637-MN with dispatch.
No costs. SO ORDERED.
3. G.R. No. 127004 March 11, 1999
NATIONAL
STEEL
CORPORATION, petitioner, vs.THE REGIONAL
TRIAL COURT OF LANAO DEL NORTE,
BRANCH 2, ILIGAN CITY and E. WILLKOM
ENTERPRISES, INC., respondents.
PURISIMA, J.:
Before the Court is a Petition for Certiorari with
Prayer for Preliminary Injunction & Temporary
Restraining Order under Rule 65 of the Revised
Rules of Court assailing the decision of the
Regional Trial Court of Lanao del Norte, Branch 2,
Iligan City, on the following consolidated cases:
(a)
Special
Proceeding
Case
No.
2206
entitled National Steel Corporation vs. E. Willkom
Enterprise Inc. to Vacate Arbitrators Award; and;
(b) Civil Case No. 2198 entitled to E. Willkom
Enterprises Inc. vs. National Steel Corporation for
Sum of Money with application for Confirmation
of Arbitrators Award.
The facts as found below are, as follows:
. . . On Nov. 18, 1992, petitioner-defendant
Edward Willkom Enterprises Inc. (EWEI for
brevity)
together
with
one
Ramiro
Construction and respondent-petitioner
National Steel Corporation (NSC for short)
executed a contract whereby the former
jointly undertook the Contract for Site
Development (Exhs. "3" & "D")for the
latter's Integrated Iron and Steel Mills
Complex to be established at Iligan City.
Sometime in the year 1983, the services of
Ramiro Construction was terminated and
on March 7, 1983, petitioner-defendant
EWEI took over Ramiro's contractual
obligation. Due to this and to other causes
deemed sufficient by EWEI, extensions of
time for the termination of the project,

initially agreed to be finished on July 17,

1983, were granted by NSC.
Differences later arose, Plaintiff-defendant
EWEI filed Civil Case No. 1615 before the
Regional Trial Court of Lanao del Norte,
Branch 06, (Exhs. "A" and "1") praying
essentially
for
the
payments
of
P458,381.001 with interest from the time
of delay; the price adjustment as provided
by PD 1594; and exemplary damages in
the amount of P50,000.00 and attorney's
fees.
Defendant-petitioner NSC filed an answer
with counterclaim to plaintiffs complaints
on May 18, 1990.
On August 21, 1990, the Honorable Court
through Presiding Judge Valario M. Salazar
upon joint motion of both parties had
issued an order (Exhs. "C" and "3")
dismissing
the
said
complaint
and
counterclaim . . . in view of the desire of
both parties to implement Sec. 19 of the
contract, providing for a resolution of any
conflict by arbitration . . . (emphasis
supplied).
In accordance with the aforesaid order, and
pursuant to Sec. 19 of the Contract for Site
Development (id) the herein parties
constituted an Arbitration Board composed
of the following:
(a) Engr. Pafnucio M. Mejia as Chairman,
who was nominated by the two arbitrators
earlier nominated by EWEI and NSC with
an Oath of Office (Exh. "E");
(b) Engr. Eutaquio O. Lagapa, Jr., member,
who was nominated by EWEI with an oath
office (Exh. "F");
(c) Engr. Gil A. Aberilla, a member who was
nominated by NSC, with an Oath of Office
(Exh. "G").
After series of hearings, the Arbitrators
rendered the decision (Exh. "H" & "4")
which is the subject matter of these
present causes of action, both initiated
separately by the herein contending
parties, substantial portion of which directs
NSC to pay EWEI, as follows:
6

(a) P458,381.00 representing EWEI's last

billing No. 16 with interest thereon at the
rate of 1-1/4% per month from January 1,
1985 to actual date of payment;
(b) P1,335,514.20 representing price
escalation adjustment under PD No. 1594,
with interest thereon at the rate of 1-1/4%
per month from January 1, 1985 to actual
date of payment;
(c) P50,000
damages;

as

and

for

exemplary

(d) P350,000 as and for attorney's fees;

and
(e) P35,000.00
arbitration. 1

as

and

for

cost

of

The Regional Trial Court of Lanao del Norte

Branch 2, Iligan through Judge Maximo B. Ratunil,
rendered judgment as follows:
(1) In Civil Case No. II-2198, declaring the
award of the Board of Arbitrators, dated
April 21, 1992 to be duly AFFIRMED and
CONFIRMED "en toto"; that an entry of
judgment be entered therewith pursuant to
Republic Act No. 876 (the Arbitration Law);
and costs against respondent National
Steel Corporation.
(2) In Special Proceeding No. II-2206,
ordering the petition to vacate the
aforesaid award be DISMISSED.
SO ORDERED.

With the denial on October 18, 1996 of its Motion

for
Reconsideration,
the
National
Steel
Corporation (NSC) has come to this court via the
present petition.
After deliberating on the petition as well as the
comment and reply thereon, the court gave due
course to the petition and considered the case
ripe for decision.
The pivot of inquiry here is whether or not the
lower court acted with grave abuse of discretion
in not vacating the arbitrator's award.
A stipulation to refer all future disputes or to
submit an ongoing dispute to an arbitrator is
valid. Republic Act 876, otherwise known as the

Arbitration Law, was enacted by Congress since

there was a growing need for a law regulating
arbitration in general.
The parties in the present case, upon entering
into a Contract for Site Development, mutually
agreed that any dispute arising from the said
contract shall be submitted for arbitration.
Explicit is Paragraph 19 of subject contract, which
reads:
Paragraph 19. ARBITRATION. All disputes,
questions or differences which may at any
time arise between the parties hereto in
connection with or relating to this
Agreement or the subject matter hereof,
including questions of interpretation or
construction, shall be referred to an
Arbitration Board composed of three (3)
arbitrators, one to be appointed by each
party, and the third, to be appointed by the
two (2) arbitrators. The appointment of
arbitrators and procedure for arbitration
shall be governed by. the provisions of the
Arbitration Law (Republic Act No. 876). The
Board shall apply Philippine Law in
adjudicating the dispute. The decision of a
majority of the members of the Arbitration
Board shall be valid, binding, final and
conclusive upon the parties, and from
which there will be no appeal, subject to
the provisions on vacating, modifying; or
correcting an award under the said
Republic Act No. 876. 3
Thereunder, if a dispute should arise from the
contract, the Arbitration Board shall assume
jurisdiction and conduct hearings. After the Board
comes up with a decision, the parties may
immediately implement the same by treating it
as an amicable settlement. However, if one of the
parties refuses to comply or is dissatisfied with
the decision, he may file a Petition to Vacate the
Arbitrator's decision before the trial court. On the
other hand, the winning party may ask the trial
court's confirmation to have such decision
enforced.
It should be stressed that voluntary arbitrators,
by the nature of their functions, act in a quasijudicial capacity. 4 As a rule, findings of facts by
quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to
specific matters, are accorded not only respect
but even finality if they are supported by
substantial evidence, 5 even if not overwhelming
or preponderant. 6 As the petitioner has availed
7

of Rule 65, the Court will not review the facts

found nor even of the law as interpreted or
applied by the arbitrator unless the supposed
errors of facts or of law are so patent and gross
and prejudicial as to amount to a grave abuse of
discretion or an excess de pouvoir on the part of
the arbitrators. 7

court in their Petition to Vacate the Arbitration

Award and which petitioner is reiterating in this
petition under scrutiny.

Thus, in a Petition to Vacate Arbitrator's Decision

before the trial court, regularity in the
performance of official functions is presumed and
the complaining party has the burden of proving
the existence of any of the grounds for vacating
the award, as provided for by Sections 24 of the
Arbitration Law, to wit:

In the case of Adamson vs. Court of Appeals, 232

SCRA 602, in upholding the decision of the Board
of Arbitrators, this Court ruled that the fact that a
party was disadvantaged by the decision of the
Arbitration. Committee does not prove evident
partiality. Proofs other than mere inference are
needed to establish evident partiality. Here,
petitioner merely averred evident partiality
without any proof to back it up. Petitioner was
never deprived of the right to present evidence
nor was there any showing that the Board
showed signs of any bias in favor of EWEI. As
correctly found by the trial court:

Sec. 24 GROUNDS FOR VACATING THE

AWARD In any one of the following
cases, the court must make an order
vacating the award upon the petition of
any party to the controversy when such
party proves affirmatively that in the
arbitration proceedings:
(a) The award was procured by corruption,
fraud or other undue means;
(b) That there was evident partiality or
corruption in the arbitrators of any of
them; or
(c) That the arbitrators were guilty of
misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and
material to the controversy; that one or
more of the arbitrators was disqualified to
act as such under section nine hereof, and
wilfully refrained from disclosing such
disqualification or of any other misbehavior
by which the rights of any party have been
materially prejudiced; or
(d) That the arbitrators exceeded their
powers, or so imperfectly executed them,
that a mutual, final and definite award
upon the subject matter submitted to them
was not made. . . .
The grounds relied upon by the petitioner were
the following (a) That there was evident partiality
in the assailed decision of the Arbitrators in favor
of the respondent; and (b) That there was
mistaken appreciation of the facts and application
of the law by the Arbitrators. These were the very
same grounds alleged by NSC before the trial

Petitioner's allegation that there was evident

partiality is untenable. It is anemic of evidentiary
support.

Thirdly, this Court cannot find its way to

support NSC's contention that there was
evident partiality in the assailed Award of
the Arbitrator in favor of the respondent
because the conclusion of the Board, which
the Court found to be well-founded, is fully
supported by substantial evidence, as
follows:
. . . The testimonies of witnesses
from both parties were heard to
clarify facts and to threash (sic) out
the dispute in the hearings. Upon
motion by NSC counsel, the hearing
of testimony from witnesses was
terminated on 22 January 1992. To
end the testimonies in the hearing
both litigant parties upon query by
Arbitrator-Chairman freely declared
that there has been no partiality in
the
manner
the
Arbitrators
conducted the hearing, that there
has been no instance, where
Arbitrators refused to postpone
requested
or
to
hear/accept
evidence pertinent and material to
the dispute. . . . (emphasis supplied)
Parentethically, and in the light of the
record above-mentioned, this Court hereby
holds that the Board of Arbitrators did not
commit any "evident partiality" imputed by
petitioner NSC. Above all, this Court must
sustain the said decision for it is a wellsettled rule that the actual findings of an
8

administrative body should be affirmed if

there is substantial evidence to support
them and the conclusions stated in the
decision are not clearly against the law and
jurisprudence, similar to the instant case,
Henceforth, every reasonable intendment.
will be indulged to give effect such
proceedings and in favor of the regulatory
and integrity of the arbitrators act. (Corpus
Juris, Vol. 5, p. 20) 8
Indeed, the allegation of evident partiality is not
well-taken because the petitioner failed to
substantiate the same.
Anent the issue of mistaken appreciation of facts
and law of the case, the petitioner theorizes that
the awards made by the Board were
unsubstantiated and the same were a plain
misapplication of the law and even contrary to
jurisprudence. To have a clearer understanding of
the petition, this Court will try to discuss
individually the awards made by the Board, and
determine if there was grave abuse of discretion
on the part of the trial court when it adopted such
awards in toto.
I. P458,381.00 representing
EWEI's last billing No. 16 with
interest thereon at the rate of 1-1/4%
per month from January 1, 1985
to actual date of payment;
Petitioner seeks to bar payment of the said
amount to EWEI. Since the latter failed to
complete the works as agreed upon, NSC had the
right to withhold such amount. The same will be
used to cover the cost differential paid to another
contractor who finished the work allegedly left
uncompleted by EWEI. Said work cost NSC
P1,225,000, and should be made chargeable to
EWEI's receivables on Final Billing No. 16 issued
to NSC.
The query here therefore is whether there was
failure on the part of EWEI to complete the work
agreed upon. This will determine whether Final
Billing No. 16 can be made chargeable to the cost
differential paid by NSC to another contractor.

After a series of hearings, the Board of Arbitrators

concluded that the work was completed by EWEI.
As correctly stated:
To authenticate the extent of unfinished
work, quantity, unit cost differential and
amount, NSC was required to submit
copies of payment vouchers and/or job
awards extended to the other contractor
engaged to complete the works. The best
efforts by NSC despite the multiplicity of
accounting/auditing/engineering
records
required in a corporate complex failed to
produce documentary proofs from their
Iligan or Makati office despite repeated
requests. NSC failed to substantiate such
allusion
of
completion
by
another
contractor three unfinished items of works,
actual quantities accomplished and unit
cost differential paid chargeable against
EWEI.
xxx xxx xxx
The latest evaluation on record of the
items of work completed by EWEI under
the contract is drawn from the NSC report
(Exhibit "II-d") dated 12 November 1985
submitted with the EWEI Billing No. 16Final in the course of processing claim on
items of work accomplished. There is no
such report or mention of unfinished work
of 90,000 MT of dumped riprap, 100,000 cu
m of site grading and 300,000 cu m of
spreading common excavated materials in
the EWEI contract alluded to by the NSC as
unfinished work otherwise EWEI Billing No.
16-Final would not have passed processing
for payment unless there is really no such
unfinished work NSC evaluation report with
no adverse findings of unfinished work
consider the contract as completed.
To affirm the work items, quantity, unit cost
differential and amount of unfinished work
left behind by EWEI, NSC in serving notice
of contract termination to EWEI should
have instead specifically cited these
obligations
in
detail
for
EWEI
to
perform/comply within 30 days, such
failure to perform/comply should have
constituted as an event in default that
would have justified termination of
contract of NSC with EWEI. If at all, this
unfinished work may be additional/extra
work awarded in 1984 to another
contractor at prices higher than the unit
9

price tendered by EWEI in 1982 and/or the

discrepancy between actual quantities of
work accomplished per plans versus
estimated quantities of work covered by
separate contract as expansion of the
original project.

actual date of payment.

Petitioner contends that EWEI is not entitled to
price escalation absent any stipulation to that
effect in the contract under which, the contract
price is fixed, citing Paragraph 2 thereof, which
stipulates:

xxx xxx xxx

2. CONTRACT PRICE
IN VIEW OF THE FOREGOING, THE SOCALLED UNFINISHED WORKS IN THE
CONTRACT BY EWEI ALLUDED TO BY NSC IS
NOT CONSIDERED AN OBLIGATION TO
PERFORM/COMPLY THUS ABSOLVING EWEI
OF ANY FAILURE TO PERFORM/COMPLY AND
THEREFORE CANNOT BE AVAILED Of AS A
RIGHT OR REMEDY BY NSC TO RECOVER
UNIT DIFFERENTIAL COST FROM EWEI FOR
THE SAME UNSUBSTANTIATED WORK DONE
BY ANOTHER CONTRACTOR. (ANNEX "C"
ARBITRATION, page 86-88 of Rollo.)
Furthermore, under the contract sued upon, it is
clear that should the Owner feel that the work
agreed upon was not completed by the
contractor, it is incumbent upon the OWNER to
send to CONTRACTOR a letter within seven (7)
days after completion of the inspection to specify
the objections thereto. 9 NSC failed to comply
with such requirement, and therefore it would be
unfair to refuse payment to EWEI, considering
that the latter had faithfully submitted Final
Billing No. 16 believing that its work had been
completed because NSC did not call its attention
to any objectionable aspect of their project.
But, what cannot be upheld is the Board's
imposition of a 1-1/4% interest per month from
January 1, 1985 to actual date of payment. There
is nothing in the said contract to justify or
authorize such an award. The trial court should
have therefore disregarded the same and instead,
applied the legal rate of 6% per annum, from Jan.
1, 1985 until this decision becomes final and
executory. This is so because the legal rate of
interest on monetary obligations not arising from
loans or forebearance of credits or goods is
6% 10 per annum in the absence of any
stipulation to the contrary.
(II) Price escalation with the
interest rate of 1-1/4% per
month from 1 January 1985 to

xxx xxx xxx

The applicable unit prices above fixed are
based on the assumption that the disposal
areas for cleared, grubbed materials,
debris, excess filling materials and other
matters that are to be disposed of or are
within the boundary limits of the site, as
designated in Annex A hereof. In the event
that disposal areas fixed and designated in
Annex A are diverted and transferred to
such other areas as would be outside the
limits of the site as would require
additional costs to the contractor, then
Owner shall be liable for such additional
hauling costs of P1.45/km/m3." (Annex "A",
Contract for Site Development, page 55
of Rollo).
The phrase "prices above fixed" means that the
contract price of the work shall be that agreed
upon by the parties at the time of the execution
of the contract, which is the law between them
provided it is not contrary to law, morals, good
customs, public order, or public policy. (Article
1306, New Civil Code). It cannot be inferred
therefrom, however, that the parties are
prohibited from imposing future increases or price
escalation. It is a cardinal rule in the
interpretation of contracts that "if the terms of a
contract are clear and leave no doubt upon the
intention of the contracting parties, the literal
meaning of its stipulations shall control. 11
But price escalation is expressly allowed under
Presidential Decree 1594, which law allows price
escalation in all contracts involving government
projects including contracts entered into by
government entities and instrumentalities and
Government Owned or Controlled Corporations
(GOCCs). It is a basic rule in contracts that law is
deemed written into the contract between the
parties. And when there is no prohibitory clause
on price escalation, the Court will allow payment
therefor. Thus, petitioner cannot rely on the case
of Llama Development Corporation vs. Court of
Appeals and National Steel Corporation, GR
10

88093, Resolution, Third Division, 20 Sept 1989.

It is not applicable here since in that case, the
contract explicitly provided that the contract
price stipulated was fixed, inclusive of all costs
and not subject to escalation, (emphasis
supplied). This, in effect, waived the provisions of
PD 1594. The case under scrutiny is different as
the disputed contract does not contain a similar
provision.
In a vain attempt to evade said law's application,
they would like the Court to believe that it is an
acquired asset corporation and not a government
owned or controlled corporation so that they are
not within the coverage of PD 1594. Whether NSC
is an asset-acquired corporation or a government
owned or controlled corporation is of no moment.
It is not determinative of the pivot of inquiry. It
bears emphasizing that during the hearings
conducted by the Board of Arbitrators, there was
presented documentary evidence to show that
NSC, despite its being allegedly an asset acquired
corporation, allowed price escalation to another
contractor, Geo Transport and Construction, Inc.
(GTCI). As said in the decision of a Board of
Arbitrators:
On the other hand, there was documentary
evidence presented that NSC granted Geo
Transport and Construction, Inc. (GTCI), the
other favored contractor working side by
side with EWEI on the site development
project during the same period the GTCE
was granted upon request and paid by NSC
an actual sum of P6.9 million as price
adjustment compensation even without the
benefit of escalation provision in the
contract but allowed in accordance with PD
NO. 1594 enforceable among government
controlled or owned corporation. The
statement is embodied in an affidavit
(Exhibit "111-h") submitted by affiant Jose
M. Mesina, Asst. to the President and Legal
Counsel of GTCI, submitted to the
Arbitrators upon solicitation of EWEI, copy
to NSC, on 3 October 1991. NSC did not
assail the affidavit upon receipt of such
document as evidence until the hearing of
19 December 1991 when the affidavit was
branded by NSC counsel as incorrect and
hearsay. Within 7 days reglamentary period
after receipt of affidavit in 3 October 1991,
the NSC had the recourse to contest the
affidavit even preferably charge the affiant
for slander if NSC could disprove the
statements as untrue. 12

If Petitioner seeks to refute such evidence, it

should have done so before the Board of
Arbitrators, during the hearings. To raise the issue
now is futile.
However, the same line of reasoning with respect
to the first award should be used in disregarding
the interest rate of 1-1/4%. The legal rate of
6% per annum should be similarly applied to the
price escalation to be computed from Jan. 1, 1985
until this decision becomes final and executory.
(III) The award of P50,000 as
exemplary damages and
P350,000 as attorney's fees;
The exemplary damages and attorneys fees
awarded by the Board of Arbitrators should be
deleted in light of the circumstances surrounding
the case.
The requirements for an award of exemplary
damages, are: (1) they may be imposed by way
of example in addition to compensatory
damages, and only after the claimants right to
them has been established; (2) that they cannot
be recovered as a matter of right, their
determination depending upon the amount of
compensatory damages that may be awarded to
the claimant; (3) the act must be accompanied by
bad faith or done in a wanton, fraudulent,
oppressive or malevolent manner. 13
EWEI cannot claim that NSC acted in bad faith or
in a wanton manner when it refused payment of
the Final Billing No. 16. The belief that the work
was never completed by EWEI and that it (NSC)
had the right to make it chargeable to the cost
differential paid by the latter to another
contractor was neither wanton nor done in
evident bad faith. The payment of legal rate of
interest will suffice to compensate EWEI of
whatever prejudice it suffered by reason of the
delay caused by NSC.
As regards the award of attorney's fees, award for
attorney's fees without justification is a
"conclusion without a premise, its basis being
improperly
left
to
speculation
and
conjencture." 14 The "fixed counsel's fee" of
P350,000 should be disallowed. The trial court
acted with grave abuse of discretion when it
adopted the same in toto.
11

WHEREFORE, the awards made by the Board of

Arbitrators which the trial court adopted in its
decision of July 31, 1996, are modified, thus:
(1) The award of P474,780.23 for Billing No. 16Final and P1,335,514.20 for price adjustment
shall be paid with legal interest of six (6%)
percent per annum, from January 1, 1985 until
this decision shall have become final and
executory;
(2) The award of P50,000 for exemplary damages
and attorney's fees of P350,000 are deleted; and
(3) The cost of arbitration of P35,000 to
supplement arbitration agreement has to be paid.
No pronouncement as to costs. SO ORDERED.
4. G.R. No. 121171 December 29, 1998
ASSET PRIVATIZATION TRUST, petitioner, vs.
COURT OF APPEALS, JESUS S. CABARRUS,
SR., JESUS S. CABARRUS, JR., JAIME T.
CABARRUS,
JOSE
MIGUEL
CABARRUS,
ALEJANDRO S. PASTOR, JR., ANTONIO U.
MIRANDA, and MIGUEL M. ANTONIO, as
Minority
Stock-Holders
of
Marinduque
Mining
and
Industrial
Corporation, respondents.
KAPUNAN, J.:
The petition for review on certiorari before us
seeks to reverse and set aside the decision of the
Court of Appeals which denied due course to the
petition
for certiorari filed
by
the
Asset
Privatization Trust (APT) assailing the order of the
Regional Trial Court (RTC) Branch 62, Makati City.
The Makati RTC's order upheld and confirmed the
award made by the Arbitration Committee in
favor of Marinduque Mining and Industrial
Corporation (MMIC) and against the Government,
represented by herein petitioner APT for damages
in the amount of P2.5 BILLION (or approximately
P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was
imposed on the Government for exercising its
legitimate right of foreclosure as creditor against
the debtor MMIC as a consequence of the latter's
failure to pay its overdue and unpaid obligation of
P22 billion to the Philippine National Bank (PNB)
and the Development Bank of the Philippines
(DBP).

The
of the case.

antecedent

facts

The development, exploration and utilization of

the mineral deposits in the Surigao Mineral
Reservation have been authorized by Republic
Act No. 1528, as amended by Republic Acts Nos.
2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3,
1968, whereby the Republic of the Philippines
thru the Surigao Mineral Reservation Board,
granted MMIC the exclusive right to explore,
develop and exploit nickel, cobalt and other
minerals
in
the
Surigao
mineral
1
reservation. MMIC is a domestic corporation
engaged in mining with respondent Jesus S.
Cabarrus, Sr. as President and among its original
stockholders.
The Philippine Government undertook to support
the financing of MMIC by purchase of MMIC
debenture bonds and extension of guarantees.
Further, the Philippine Government obtained a
firm commitment form the DBP and/or other
government financing institutions to subscribe in
MMIC and issue guarantee/s for foreign loans or
deferred payment arrangements secured from
the US Eximbank, Asian Development Bank, Kobe
Steel, of amount not exceeding US$100 Million. 2
DBP approved guarantees in favor of MMIC and
subsequent requests for guarantees were based
on the unutilized portion of the Government
commitment.
Thereafter,
the
Government
extended accommodations to MMIC in various
amounts.
On July 13, 1981, MMIC, PNB and DBP executed a
Mortgage Trust Agreement 3 whereby MMIC, as
mortgagor, agreed to constitute a mortgage in
favor or PNB and DBP as mortgagees, over all
MMIC's assets; subject of real estate and chattel
mortgage executed by the mortgagor, and
additional assets described and identified,
including assets of whatever kind, nature or
description, which the mortgagor may acquire
whether in substitution of, in replenishment, or in
addition thereto.
Article IV of the Mortgage Trust Agreement
provides for Events of Default, which expressly
includes the event that the MORTGAGOR shall fail
to pay any amount secured by this Mortgage
Trust Agreement when due. 4
Article V of the Mortgage Trust Agreement
prescribes in detail, and in addition to the
12

enumerated events of defaults, circumstances by

which the mortgagor may be declared in default,
the procedure therefor, waiver of period to
foreclose, authority of Trustee before, during and
after foreclosure, including taking possession of
the mortgaged properties. 5
In various requests for advances/remittances of
loans if huge amounts, Deeds of Undertaking,
Promissory Notes, Loan Documents, Deeds of
Real
Estate
Mortgages,
MMIC
invariably
committed to pay either on demand or under
certain terms the loans and accommodations
secured from or guaranteed by both DBP and
PNB.
By 1984, DBP and PNB's financial both in loans
and in equity in MMIC had reached tremendous
proportions, and MMIC was having a difficult time
meeting its financial obligations. MMIC had an
outstanding loan with DBP in the amount of
P13,792,607,565.92 as of August 31, 1984 and
with PNB in the amount of P8,789,028,249.38 as
July 15, 1984 or a total Government expose of
Twenty Two Billion Six Hundred Sixty-Eight Million
Five Hundred Thirty-Seven Hundred Seventy and
05/100
(P22,
668,537,770.05),
Philippine
Currency. 6 Thus, a financial restructuring plan
(FRP) designed to reduce MMIC's interest expense
through debt conversion to equity was drafted by
the Sycip Gorres Velayo accounting firm. 7 On
April 30, 1984, the FRP was approved by the
Board of Directors of the MMIC. 8 However, the
proposed FRP had never been formally adopted,
approved or ratified by either PNB or DBP. 9
In August and September 1984, as the various
loans and advances made by DBP and PNB to
MMIC had become overdue and since any
restructuring program relative to the loans was
no longer feasible, and in compliance with the
directive of Presidential Decree No. 385, DBP and
PNB as mortgagees of MMIC assets, decided to
exercise their right to extrajudicially foreclose the
mortgages in accordance with the Mortgage Trust
Agreement. 10
The foreclosed assets were sold to PNB as the
lone bidder and were assigned to three newly
formed corporations, namely, Nonoc Mining
Corporation, Maricalum Mining and Industrial
Corporation, and Island Cement Corporation. In
1986, these assets were transferred to the Asset
Privatization Trust (APT). 11
On February 28, 1985, Jesus S. Cabarrus, Sr.,
together with the other stockholders of MMIC,

filed a derivative suit against DBP and PNB before

the RTC of Makati, Branch 62, for Annulment of
Foreclosures,
Specific
Performance
and
Damages. 12 The suit, docketed as Civil Case No.
9900, prayed that the court: (1) annul the
foreclosures, restore the foreclosed assets to
MMIC, and require the banks to account for their
use and operation in the interim; (2) direct the
banks to honor and perform their commitments
under the alleged FRP; and (3) pay moral and
exemplary damages, attorney's fees, litigation
expenses and costs.
In the course of the trial, private respondents and
petitioner APT, as successor of the DBP and the
PNB's interest in MMIC, mutually agreed to submit
the case to arbitration by entering into a
"Compromise
and
Arbitration
Agreement,"
stipulating, inter alia:
NOW THEREFORE, for and in consideration
of the foregoing premises and the mutual
covenants contained herein the parties
agree as follows:
1. Withdrawal and Compromise. The
parties have agreed to withdraw their
respective claims from the Trial Court and
to resolve their dispute through arbitration
by praying to the Trial Court to issue a
Compromise Judgment based on this
Compromise and Arbitration Agreement.
In withdrawing their dispute from the court
and in choosing to resolve it through
arbitration, the parties have agreed that:
(a) their respective money claims shall be
reduced to purely money claims; and
(b) as successor and assignee of the PNB
and DBP interests in MMIC and the MMIC
accounts, APT shall likewise succeed to the
rights and obligations of PNB and DBP in
respect of the controversy subject of Civil
Case No. 9900 to be transferred to
arbitration and any arbitral award/order
against either PNB and/or DBP shall be the
responsibility be discharged by and be
enforceable against APT, the parties having
agreed to drop PNB and DBP from the
arbitration.
2. Submission. The parties hereby agree
that (a) the controversy in Civil Case No.
9900 shall be submitted instead to
13

arbitration under RA 876 and (b) the reliefs

prayed for in Civil Case No. 9900 shall, with
the approval of the Trial Court of this
Compromise and Arbitration Agreement,
be transferred and reduced to pure
pecuniary/money claims with the parties
waiving and foregoing all other forms of
reliefs which they prayed for or should
have prayed for in Civil Case No. 9900. 13
The Compromise and Arbitration
limited the issues to the following:

Agreement

5. Issues The issues to be submitted for the

Committee's resolution shall be (a)
Whether PLAINTIFFS have the capacity or
the personality to institute this derivative
suit in behalf of the MMIC or its directors,
(b) Whether or not the actions leading to,
and including,. the PNB-DBP foreclosure of
the MMIC assets were proper, valid and in
good
faith. 14
This agreement was presented for approval to the
trial court. On October 14, 1992, the Makati RTC,
Branch 61, issued an order, to wit:
WHEREFORE, this Court orders:
1. Substituting PNB and DBP with the Asset
Privatization Trust as party defendant.
2.
Approving
the
Compromise
and
Arbitration Agreement dated October 6,
1997, attached as Annex "C" of the
Omnibus Motion.
3. Approving the Transformation of the
reliefs prayed for [by] the plaintiffs in this
case into pure money claims; and
4. The Complaint is hereby DISMISSED.

15

The Arbitration Committee was composed of

retired Supreme Court Justice Abraham Sarmiento
as Chairman, Atty. Jose C. Sison and former Court
of Appeals Justice Magdangal Elma as Members.
On November 24, 1993, after conducting several
hearings, the Arbitration Committee rendered a
majority decision in favor of MMIC, the pertinent
portions of which read as follows:
Since, as this Committee finds, there is no
foreclosure at all as it was not legally and
validly done, the Committee holds and so

declares that the loans of PNB and DBP to

MMIC. for the payment and recovery of
which the void foreclosure sales were
undertaken,
continue
to
remain
outstanding and unpaid. Defendant APT as
the successor-in-interest of PNB and DBP to
the said loans is therefore entitled and
retains the right, to collect the same from
MMIC pursuant to, and based on the loan
documents signed by MMIC, subject to the
legal and valid defenses that the latter
may duly and seasonably interpose. Such
loans shall, however, be reduced by the
amount which APT may have realized from
the sale of the seized assets of MMIC which
by agreement should no longer be returned
even if the foreclosures were found to be
null and void.
The documentary evidence submitted and
adopted by the parties (Exhibits "3", "3-B";
Exhibit "100"; and also Exhibit "ZZZ") as
their exhibits would show that the total
outstanding obligation due to DBP and PNB
as of the date of foreclosure is
P22,668,537,770.05, more or less.
Therefore defendant APT can, and is still
entitled to, collect the outstanding
obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05, more or
less, with interest thereon as stipulated in
the loan documents from the date of
foreclosure up to the time they are fully
paid less the proportionate liability of DBP
as owner of 87% of the total capitalization
of MMIC under the FRP. Simply put, DBP
shall share in the award of damages to,
and in the obligations of, MMIC in
proportion to its 87% equity in tile total
capital stock of MMIC.
xxx xxx xxx
As this Committee holds that the FRP is
valid, DBP's equity in MMIC is raised to
87%. So pursuant to the above provision of
the
Compromise
and
Arbitration
Agreement, the 87% equity of DBP is
hereby deducted from the actual damages
of P19,486,118,654.00 resulting in the net
actual damages of P2,531,635,425.02 plus
interest.
DISPOSITION

14

WHEREFORE,
premises
judgment is hereby rendered:

considered,

1. Ordering the defendant to pay to the

Marinduque
Mining
and
Industrial
Corporation, except the DBP, the sum of
P2,531,635,425.02 with interest thereon at
the legal rate of six per cent (6%) per
annum reckoned from August 3, 9, and 24,
1984, pari passu, as and for actual
damages. Payment of these actual
damages shall be offset by APT from the
outstanding and unpaid loans of MMIC with
DBP and PNB, which have not been
converted into equity. Should there be any
balance due to MMIC after the offsetting,
the same shall be satisfied from the funds
representing the purchase price of the sale
of the shares of Island Cement Corporation
in the amount of P503,000,000.00 held
under escrow pursuant to the Escrow
Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would
supercede [sic] it pursuant to paragraph
(9) of the Compromise and Arbitration
Agreement;
2. Ordering the defendant to pay to the
Marinduque
Mining
and
Industrial
Corporation, except the DBP, the sum of
P13,000.000.00, as and for moral and
exemplary damages. Payment of these
moral and exemplary damages shall be
offset by APT from the outstanding and
unpaid loans of MMIC with DBP and PNB,
which have not been converted into equity.
Should there be any balance due to MMIC
after the offsetting, the same shall be
satisfied from the funds representing the
purchase price of the sale of the shares of
Island Cement Corporation in the amount
of P503,000,000.00 held under escrow
pursuant to the Escrow Agreement dated
April 22, 1988 or to such subsequent
escrow agreement that would supercede
[sic] it pursuant to paragraph (9) of the
Compromise and Arbitration Agreement;
3. Ordering the defendant to pay to the
plaintiff, Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00, to be satisfied likewise
from the funds held under escrow pursuant
to the Escrow Agreement dated April 22,
1988 or to such subsequent escrow
agreement that would supersede it,
pursuant to paragraph (9) of the

Compromise and Arbitration Agreement, as

and for moral damages; and
4. Ordering the
arbitration costs.

defendant

to

pay

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.

16

Motions for reconsideration were filed by both

parties, but the same were denied.
On October 17, 1993, private respondents filed in
the
same
Civil
Case
No.
9900
an
"Application/Motion
for
Confirmation
of
Arbitration Award." Petitioner countered with an
"Opposition and Motion to Vacate Judgment"
raising the following grounds.
1. The plaintiffs Application/Motion is
improperly filed with this branch of the
Court, considering that the said motion is
neither a part nor the continuation of the
proceedings in Civil Case No. 9900 which
was dismissed upon motion of the parties.
In fact, the defendants in the said Civil
Case No. 9900 were the Development Bank
of the Philippines and the Philippine
National Bank (PNB);
2. Under Section 71 of Rep. Act 876, an
arbitration under a contract or submission
shall be deemed a special proceedings and
a party to the controversy which was
arbitrated may apply to the court having
jurisdiction, (not necessarily with this
Honorable Court) for an order confirming
the award;
3. The issues submitted for arbitration
have been limited to two: (1) propriety of
the plaintiffs filing the derivative suit and
(2) the regularity of the foreclosure
proceedings. The arbitration award sought
to be confirmed herein, far exceeded the
issues submitted and even granted moral
damages to one of the herein plaintiffs;
4. Under Section 24 of Rep. Act 876, the
Court must make an order vacating the
award where the arbitrators exceeded their
powers, or so imperfectly executed them,
that a mutual, final and definite award
upon the subject matter submitted to them
was not made. 17
15

Private respondents filed a "REPLY AND

OPPOSITION" dated November 10, 1984, arguing
that a dismissal of Civil Case No. 9900 was
merely a "qualified dismissal" to pave the way for
the submission of the controversy to arbitration
and operated simply as "a mere suspension of
the proceedings" They denied that the Arbitration
Committee had exceeded its powers.
In an Order dated November 28, 1993, the trial
court confirmed the award of the Arbitration
Committee. The dispositive portion of said order
reads:
WHEREFORE, premises considered, and in
the light of the parties [sic] Compromise
and Arbitration Agreement dated October
6, 1992, the Decision of the Arbitration
Committee promulgated on November 24,
1993, as affirmed in a Resolution dated July
26, 1994, and finally settled and clarified in
the Separate Opinion dated September 2,
1994 of Committee Member Elma, and the
pertinent provisions of RA 876, also known
as the Arbitration Law, this Court GRANTS
PLAINTIFFS'
APPLICATION
AND
THUS
CONFIRMS THE ARBITRATION AWARD, AND
JUDGMENT IS HEREBY RENDERED:
(a) Ordering the defendant APT to the
Marinduque
Mining
and
Industrial
Corporation (MMIC), except the DBP, the
sum of P3,811,757,425.00, as and for
actual damages, which shall be partially
satisfied from the funds held under escrow
in the amount of
P503,000,000.00
pursuant to the Escrow Agreement dated
April 22, 1988. The balance of the award,
after the escrow funds are fully applied,
shall be executed against the APT;
(b) Ordering the defendant to pay to the
MMIC, except the DBP, the sum of
P13,000,000.00 as and for moral and
exemplary damages;
(c) Ordering the defendant to pay to Jesus
S.
Cabarrus,
Sr.,
the
sum
of
P10,000,000.00 as and for moral damages;
and
(d) Ordering the defendant to pay the
herein plaintiffs/applicants/movants the
sum of P1,705,410.23 as arbitration costs.

In reiteration of the mandates of

Stipulation No. 10 and Stipulation No. 8
paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict
of the Arbitration Committee's decision,
and with this Court's Confirmation, the
issuance of the Arbitration Committee's
Award shall henceforth be final and
executory. SO ORDERED. 18
On December 27, 1994, petitioner filed its motion
for reconsideration of the Order dated November
28, 1994. Private respondents, in turn, submitted
their reply and opposition thereto.
On January 18, 1995, the trial court handed down
its order denying APT's motion for reconsideration
for lack of merit and for having been filed out of
time. The trial court declared that "considering
that the defendant APT, through counsel, officially
and actually received a copy of the Order of this
Court dated November 28, 1994 on December 6,
1994, the Motion for Reconsideration thereof filed
by the defendant APT on December 27, 1994, or
after the lapse of 21 days, was clearly filed
beyond
the
15-day
reglementary
period
prescribed or provided for by law for the filing of
an appeal from final orders, resolutions, awards,
judgments or decisions of any court in all cases,
and by necessary implication for the filing of a
motion for reconsideration thereof."
On February 7, 1995, petitioner received private
respondents'
Motion
for
Execution
and
Appointment of Custodian of Proceeds of
Execution dated February 6, 1995.
Petitioner thereafter filed with the Court of
Appeals a special civil action for certiorari with
temporary restraining order and/or preliminary
injunction dated February 13, 1996 to annul and
declare as void the Orders of the RTC-Makati
dated November 28, 1994 and January 18, 1995
for having been issued without or in excess of
jurisdiction
and/or with grave
abuse of
19
discretion. As
ground
therefor,
petitioner
alleged that:
I
THE RESPONDENT JUDGE HAS NOT VALIDLY
ACQUIRED JURISDICTION MUCH LESS, HAS
THE COURT AUTHORITY, TO CONFIRM THE
ARBITRAL AWARD CONSIDERING THAT THE
ORIGINAL CASE, CIVIL CASE NO. 9900, HAD
PREVIOUSLY BEEN DISMISSED.
16

II
THE RESPONDENT JUDGE COMMITTED
GRAVE ABUSE OF DISCRETION AND ACTED
WITHOUT OR IN EXCESS OF JURISDICTION,
IN ISSUING THE QUESTIONED ORDERS
CONFIRMING THE ARBITRAL AWARD AND
DENYING
THE
MOTION
FOR
RECONSIDERATION OF ORDER OF AWARD.
III
THE
RESPONDENT
JUDGE
GROSSLY
ABUSED HIS DISCRETION AND ACTED
WITHOUT OR IN EXCESS OF AND WITHOUT
JURISDICTION
IN
RECKONING
THE
COUNTING OF THE PERIOD TO FILE
MOTION FOR RECONSIDERATION, NOT
FROM THE DATE OF SERVICE OF THE
COURT'S COPY CONFIRMING THE AWARD,
BUT FROM RECEIPT OF A XEROX COPY OF
WHAT PRESUMABLY IS THE OPPOSING
COUNSEL'S COPY THEREOF. 20
On July 12, 1995, he Court of Appeals, through its
Fifth-Division, denied due course and dismissed
the petition forcertiorari.
Hence,
the
instant
petition
for
review
on certiorari imputing to the Court of Appeals the
following errors:
ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE MAKATI REGIONAL
TRIAL COURT, BRANCH 62 WHICH HAS
PREVIOUSLY DISMISSED CIVIL CASE NO.
9900 HAD LOST JURISDICTION TO CONFIRM
THE ARBITRAL AWARD UNDER THE SAME
CIVIL CASE AND NOT RULING THAT THE
APPLICATION FOR CONFIRMATION SHOULD
HAVE BEEN FILED AS A NEW CASE TO BE
RAFFLED OFF AMONG THE DIFFERENT
BRANCHES OF THE RTC.
II
THE COURT OF APPEALS LIKEWISE ERRED
IN HOLDING THAT PETITIONER WAS
ESTOPPED
FROM
QUESTIONING
THE
ARBITRATION AWARD, WHEN PETITIONER
QUESTIONED THE JURISDICTION OF THE
RTC-MAKATI, BRANCH 62 AND AT THE SAME

TIME MOVED TO VACATE THE ARBITRAL

AWARD.
III
THE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE RESPONDENT TRIAL
COURT
SHOULD
HAVE
EITHER
DISMISSED/DENIED
PRIVATE
RESPONDENTS'
MOTION/PETITION
FOR
CONFIRMATION OF ARBITRATION AWARD
AND/OR SHOULD HAVE CONSIDERED THE
MERITS OF THE MOTION TO VACATE
ARBITRAL AWARD.
IV
THE COURT OF APPEALS ERRED IN NOT
TREATING PETITIONER APT'S PETITION
FORCERTIORARI AS AN APPEAL TAKEN
FROM THE ORDER CONFIRMING THE
AWARD.
V
THE COURT OF APPEALS ERRED IN NOT
RULING ON THE LEGAL ISSUE OF WHEN TO
RECKON THE COUNTING OF THE PERIOD
TO
FILE
A
MOTION
FOR
RECONSIDERATION. 21
The petition is impressed with merit.
I
The RTC of Makati, Branch 62,
did not have jurisdiction to confirm
the arbitral award.
The use of the term "dismissed" is not "a mere
semantic imperfection". The dispositive portion of
the Order of the trial court dated October 14,
1992 stated in no uncertain terms:
4.
The
Complaint
DISMISSED. 22

is

hereby

The term "dismiss" has a precise definition

in law. "To dispose of an action, suit, or
motion without trial on the issues involved.
Conclude,
discontinue,
terminate,
quash." 23

17

Admittedly, the correct procedure was for the

parties to go back to the court where the case
was pending to have the award confirmed by said
court.
However,
Branch
62
made
the fatal mistake of issuing a final order
dismissing the case. While Branch 62 should have
merely suspended the case and not dismissed
it, 24 neither of the parties questioned said
dismissal. Thus, both parties as well as said court
are bound by such error.
It is erroneous then to argue, as private
respondents do, that petitioner APT was charged
with the knowledge that the "case was merely
stayed until arbitration finished," as again, the
order of Branch 62 in very clear terms stated that
the "complaint was dismissed." By its own action,
Branch 62 had lost jurisdiction over the case. It
could not have validly reacquired jurisdiction over
the said case on mere motion of one of the
parties. The Rules of Court is specific on how a
new case may be initiated and such is not done
by mere motion in a particular branch of the RTC.
Consequently, as there was no "pending action"
to speak of, the petition to confirm the arbitral
award should have been filed as a new case and
raffled accordingly to one of the branches of the
Regional Trial Court.

cause and encountering an adverse decision on

the merits, it is too late for the loser to question
the jurisdiction or power of the court."
Petitioner's situation is different because from the
outset, it has consistently held the position that
the RTC, Branch 62 had no jurisdiction to confirm
the arbitral award; consequently, it cannot be
said that it was estopped from questioning the
RTC's jurisdiction. Petitioner's prayer for the
setting aside of the arbitral award was not
inconsistent with its disavowal of the court's
jurisdiction.
III
Appeal of petitioner to the
Court of Appeals thru certiorari
under Rule 65 was proper.

II

The Court of Appeals in dismissing APT's petition

for certiorari upheld the trial court's denial of
APT's motion for reconsideration of the trial
court's order confirming the arbitral award, on the
ground that said motion was filed beyond the 15day reglementary period; consequently, the
petition for certiorari could not be resorted to as
substitute to the lost right of appeal.

Petitioner was not estopped from

We do not agree.

questioning the jurisdiction of

Section 99 of Republic Act No. 876,

that:

Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already
estopped to question the jurisdiction of the RTC to
confirm the arbitral award because it sought
affirmative relief in said court by asking that the
arbitral award be vacated.
The rule is that "Where the court itself clearly has
no jurisdiction over the subject matter or the
nature of the action, the invocation of this
defense may be done at any time. It is neither for
the courts nor for the parties to violate or
disregard that rule, let alone to confer that
jurisdiction this matter being legislative in
character." 25 As a rule then, neither waiver nor
estoppel shall apply to confer jurisdiction upon a
court barring highly meritorious and exceptional
circumstances. 26 One
such
exception
was
enunciated in Tijam vs. Sibonghanoy, 27 where it
was held that "after voluntarily submitting a

28

provides

. . . An appeal may be taken from an

order made in a proceeding under
this Act, or from a judgment entered
upon
an
award
through certiorari proceedings, but
such appeals shall be limited to
questions of law. . . ..
The aforequoted provision, however, does not
preclude a party aggrieved by the arbitral award
from resorting to the extraordinary remedy
of certiorari under Rule 65 of the Rules of Court
where, as in this case, the Regional Trial Court to
which the award was submitted for confirmation
has acted without jurisdiction or with grave abuse
of discretion and there is no appeal, nor any
plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:
18

Sec 1. Petition for Certiorari: When any

tribunal, board or officer exercising judicial
functions, has acted without or in excess of
its or his jurisdiction, or with grave abuse
of discretion and there is no appeal, nor
any plain, speed, and adequate remedy in
the ordinary course of law, a person
aggrieved thereby may file a verified
petition in the proper court alleging the
facts with certainty and praying that
judgment be rendered annulling or
modifying the proceedings, as the law
requires, of such tribunal, board or officer.
In the instant case, the respondent court erred in
dismissing the special civil action for certiorari, it
being clear from the pleadings and the evidence
that the trial court lacked jurisdiction and/or
committed grave abuse of discretion in taking
cognizance of private respondents' motion to
confirm the arbitral award and, worse, in
confirming said award which is grossly and
patently not in accord with the arbitration
agreement, as will be hereinafter demonstrated.
IV
The nature and limits of the
Arbitrators' power.
As a rule, the award of an arbitrator cannot be set
aside for mere errors of judgment either as to the
law or as to the facts. 29 Courts are without power
to amend or overrule merely because of
disagreement with matters of law or facts
determined by the arbitrators. 30 They will not
review the findings of law and fact contained in
an award, and will not undertake to substitute
their judgment for that of the arbitrators, since
any other rule would make an award the
commencement,
not
the
end,
of
litigation. 31 Errors of law and fact, or an
erroneous decision of matters submitted to the
judgment of the arbitrators, are insufficient to
invalidate an award fairly and honestly
made. 32 Judicial review of an arbitration is thus,
more limited than judicial review of a trial. 33
Nonetheless, the arbitrators' award is not
absolute and without exceptions. The arbitrators
cannot resolve issues beyond the scope of the
submission agreement. 34 The parties to such an
agreement are bound by the arbitrators' award
only to the extent and in the manner prescribed
by the contract and only if the award is rendered
in conformity thereto.35 Thus, Sections 24 and 25

of the Arbitration Law provide grounds for

vacating, rescinding or modifying an arbitration
award. Where the conditions described in Articles
2038, 36
2039, 37 and 1040 38 of the Civil Code applicable
to compromises and arbitration are attendant,
the arbitration award may also be annulled.
In Chung Fu Industries (Phils.) vs. Court of
Appeals, 39 we held:
. . . . It is stated explicitly under Art. 2044
of the Civil Code that the finality of the
arbitrators' award is not absolute and
without exceptions. Where the conditions
described in Articles 2038, 2039 and 2040
applicable to both compromises and
arbitrations are obtaining, the arbitrator's
award may be annulled or rescended.
Additionally, under Sections 24 and 25 of
the Arbitration Law, there are grounds for
vacating, modifying or rescinding an
arbitrator's award. Thus, if and when the
factual circumstances referred to the
above-cited provisions are present, judicial
review of the award is properly warranted.
According, Section 20 of R.A. 876 provides:
Sec. 20. Form and contents of award.
The award must be made in writing and
signed and acknowledge by a majority of
the arbitrators, if more than one; and by
the sole arbitrator, if there is only only.
Each party shall be furnished with a copy
of the award. The arbitrators in their award
may grant any remedy or relief which they
deem just and equitable and within the
scope of the agreement of the parties,
which shall include, but not be limited to,
the specific performance of a contract.
xxx xxx xxx
The arbitrators shall have the power to
decide only those matters which have
been submitted to them. The terms of the
award shall be confined to such disputes.
(Emphasis ours).
xxx xxx xxx
Sec. 24 of the same law enumerating the grounds
for vacating an award states:

19

Sec. 24. Grounds for vacating award. In

any one of the following cases, the court
must make an order vacating the award
upon the petition of any party to the
controversy when such party proves
affirmatively that in the arbitration
proceeding:

(c) Where the award is imperfect in a

matter of form not affecting the merits of
the controversy, and if it had been a
commissioner's report, the defect could
have been amended or disregarded by the
court.
xxx xxx xxx

(a) The award was procured by corruption,

fraud, or other undue means; or
(b) That there was evident partiality or
corruption in the arbitrators or any of
them; or
(c) That the arbitrators were guilty of
misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and
material to the controversy; that one or
more of the arbitrators was disqualified to
act as such under section nine hereof, and
willfully refrained from disclosing such
disqualifications or any other misbehavior
by which the rights of any party have been
materially prejudiced; or
(d) That the arbitrators exceeded their
powers, or so imperfectly executed them,
that a mutual, final and definite award
upon the subject matter submitted to them
was not made. (Emphasis ours)
xxx xxx xxx.
Section 25 which enumerates the grounds for
modifying the award provides:
Sec. 25. Grounds for modifying or
correcting award In anyone of the
following cases, the court must make an
order modifying or correcting the award,
upon the application of any party to the
controversy which was arbitrated:
(a)
Where
there
was
an
evident
miscalculation of figures, or an evident
mistake in the description of any person,
thing or property referred to in the award;
or
(b) Where the arbitrators have awarded
upon a matter not submitted to them, not
affecting the merits of the decision upon
the matter submitted; or

Finally, it should be stressed that while a court is

precluded from overturning an award for errors in
the determination of factual issues, nevertheless,
if an examination of the record reveals no support
whatever for the arbitrators determinations, their
award must be vacated. 40 in the same manner,
an award must be vacated if it was made in
"manifest disregard of the law." 41
Against the backdrop of the foregoing provisions
and principles, we find that the arbitrators came
out with an award in excess of their powers and
palpably devoid of factual and legal basis.
V
There was no financial
structuring program:
foreclosure of mortgage
was fully justified.
The point need not be belabored that PNB and
DBP had the legitimate right to foreclose of the
mortgages of MMIC whose obligations were past
due. The foreclosure was not a wrongful act of
the banks and, therefore, could not be the basis
of any award of damages. There was no financial
restructuring agreement to speak of that could
have constituted an impediment to the exercise
of the banks' right to foreclose.
As correctly stated by Mr. Jose C. Sison, a
member of the Arbitration Committee who wrote
a separate opinion:
1. The various loans and advances made
by DBP and PNB to MMIC have become
overdue and remain unpaid. The fact that a
FRP was drawn up is enough to establish
that MMIC has not been complying with the
terms of the loan agreement. Restructuring
simply connotes that the obligations are
past due that is why it is "restructurable";
20

2. When MMIC thru its board and the

stockholders agreed and adopted the FRP,
it only means that MMIC had been
informed or notified that its obligations
were past due and that foreclosure is
forthcoming;
3. At that stage, MMIC also knew that PNBDBP had the option of either approving the
FRP or proceeding with the foreclosure.
Cabarrus, who filed this case supposedly in
behalf of MMIC should have insisted on the
FRP. Yet Cabarrus himself opposed the FRP;
4. So when PNB-DBP proceeded with the
foreclosure, it was done without bad faith
but with the honest and sincere belief that
foreclosure was the only alternative; a
decision further explained by Dr. Placido
Mapa who testified that foreclosure was, in
the judgment of PNB, the best move to
save MMIC itself.
Q : Now in this portion of Exh. "L" which
was marked as Exh. "L-1", and we adopted
as Exh. 37-A for the respondent, may I
know from you, Dr. Mapa what you meant
by "that the decision to foreclose was
neither precipitate nor arbitrary"?
A : Well, it is not a whimsical decision but
rather decision arrived at after weighty
consideration of the information that we
have received, and listening to the
prospects which reported to us that what
we had assumed would be the premises of
the financial rehabilitation plan was not
materialized nor expected to materialize.
Q : And this statement that "it was
premised upon the known fact" that
means, it was referring to the decision to
foreclose, was premised upon the known
fact that the rehabilitation plan earlier
approved by the stockholders was no
longer feasible, just what is meant "by no
longer feasible"?
A : Because the revenue that they were
counting on to make the rehabilitation plan
possible, was not anymore expected to be
forthcoming because it will result in a short
fall compared to the prices that were
actually taking place in the market.

Q : And I suppose that was what you were

referring to when you stated that the
production targets and assumed prices of
MMIC's products, among other projections,
used in the financial reorganization
program that will make it viable were not
met nor expected to be met?
A : Yes.
xxx xxx xxx
Which brings me to my last point in this
separate opinion. Was PNB and DBP
absolutely unjustified in foreclosing the
mortgages?
In this connection, it can readily be seen
and it cannot quite be denied that MMIC
accounts in PNB-DBP were past due. The
drawing up of the FRP is the best proof of
this. When MMIC adopted a restructuring
program for its loan, it only meant that
these loans were already due and unpaid.
If these loans were restructurable because
they were already due and unpaid, they
are likewise "forecloseable". The option is
with the PNB-DBP on what steps to take.
The mere fact that MMIC adopted the FRP
does not mean that DBP-PNB lost the
option to foreclose. Neither does it mean
that the FRP is legally binding and
implementable. It must be pointed that
said FRP will, in effect, supersede the
existing and past due loans of MMIC with
PNB-DBP. It will become the new loan
agreement between the lenders and the
borrowers. As in all other contracts, there
must therefore be a meeting of minds of
the parties; the PNB and DBP must have to
validly adopt and ratify such FRP before
they can be bound by it; before it can be
implemented. In this case, not an iota of
proof has been presented by the
PLAINTIFFS showing that PNB and DBP
ratified and adopted the FRP. PLAINTIFFS
simply relied on a legal doctrine of
promissory
estoppel
to
support
its
allegations in this regard. 42
Moreover, PNB and DBP had to initiate foreclosure
proceedings as mandated by P.D. No. 385, which
took effect on January 31, 1974. The decree
requires government financial institutions to
foreclose collaterals for loans where the
arrearages amount to 20% of the total
21

outstanding obligations. The pertinent provisions

of said decree read as follow:

the case, the arbitrators in making the award

went beyond the arbitration agreement.

Sec. 1. It shall be mandatory for

government financial institutions, after the
lapse of sixty (60) days from the issuance
of this Decree, to foreclose the collaterals
and/or securities for any loan, credit,
accommodation,
and/or
guarantees
granted by them whenever the arrearages
on such account, including accrued interest
and other charges, amount to at least
twenty percent (20%) of the total
outstanding obligations, including interest
and other charges, as appearing in the
books of account and/or related records of
the financial institutions concerned. This
shall be without prejudice to the exercise
by the government financial institutions of
such rights and/or remedies available to
them under their respective contracts with
their debtors, including the right to
foreclosure
on
loans,
credits,
accommodations and/or guarantees on
which the arrearages are less than twenty
percent (20%).

In their complaint filed before the trial court,

private respondent Cabarrus, et al. prayed for
judgment in their favor:

Sec. 2. No restraining order temporary or

permanent injunction shall be issued by
the court against any government financial
institution in any action taken by such
institution
in
compliance
with
themandatory foreclosure provided in
Section 1 hereof, whether such restraining
order, temporary or permanent injunction
is sought by the borrower(s) or any third
party or parties, except after due hearing
in which it is established by the borrower
and admitted by the government financial
institution concerned that twenty percent
(20%) of the outstanding arrearages has
been paid after the filing of foreclosure
proceedings. (Emphasis supplied.)
Private respondents' thesis that the foreclosure
proceedings were null and void because of lack of
publication in the newspaper is nothing more
than a mere unsubstantiated aliegation not borne
out by the evidence. In any case, a disputable
presumption exists in favor of petitioner that
official duty has been regularly performed and
ordinary course of business has been followed. 43
VI
Not only was the foreclosure rightfully exercised
by the PNB and DBP, but also, from the facts of

1. Declaring the foreclosures effected by

the defendants DBP and PNB on the assets
of MMIC null and void and directing said
defendants to restore the foreclosed assets
to the possession of MMIC, to render an
accounting of their use and/or operation of
said assets and to indemnify MMIC for the
loss occasioned by its dispossession or the
deterioration thereof;
2. Directing the defendants DBP and PNB
to honor and perform their commitments
under the financial reorganization plan
which was approved at the annual
stockholders' meeting of MMIC on 30 April
1984;
3. Condemning the defendants DBP and
PNB, jointly and severally to pay the
plaintiffs actual damages consisting of the
loss of value of their investments
amounting to not less than P80,000,000,
the damnum emergens and lucrum
cessans in such amount as may be
established
during
the
trial,
moral
damages in such amount as this Honorable
Court may deem just and equitable in the
premises, exemplary damages in such
amount as this Honorable Court may
consider appropriate for the purpose of
setting an example for the public good,
attorney's fees and litigation expenses in
such amounts as may be proven during the
trial, and the costs legally taxable in this
litigation.
Further, plaintiffs pray for such other reliefs
as may be just and equitable in the
premises. 44
Upon submission for arbitration, the Compromise
and Arbitration Agreement of the parties clearly
and explicitly defined and limited the issues to
the following:
(a) whether PLAINTIFFS have the capacity
or the personality to institute this
derivative suit in behalf of the MMIC or its
directors;
22

(b) whether or not the actions leading to,

and including, the PNB-DBP foreclosure of
the MMIC assets were proper, valid and in
good faith. 45
Item No. 8 of the Agreement provides for the
period by which the Committee was to render its
decision, as well as the nature thereof:
8. Decision. The committee shall issue a
decision on the controversy not later than
six (6) months from the date of its
constitution.
In the event the committee finds that
PLAINTIFFS have the personality to file this
suit and the extra-judicial foreclosure of
the MMIC assets wrongful, it shall make an
award in favor of the PLAINTIFFS (excluding
DBP), in an amount as may be established
or warranted by the evidence which shall
be payable in Philippine Pesos at the time
of the award. Such award shall be paid by
the APT or its successor-in-interest within
sixty (60) days from the date of the award
in accordance with the provisions of par. 9
hereunder. . . . . The PLAINTIFFS' remedies
under this Section shall be in addition to
other remedies that may be available to
the PLAINTIFFS, all such remedies being
cumulative and not exclusive of each other.
On the other hand, in case the arbitration
committee finds that PLAINTIFFS have no
capacity to sue and/or that the extrajudicial foreclosure is valid and legal, it
shall also make an award in favor of APT
based on the counterclaims of DBP and
PNB in an amount as may be established or
warranted by the evidence. This decision of
the arbitration committee in favor of APT
shall likewise finally settle all issues
regarding the foreclosure of the MMIC
assets so that the funds held in escrow
mentioned in par. 9 hereunder will thus be
released
in
full
in
favor
of
APT. 46
The clear and explicit terms of the submission
notwithstanding, the Arbitration Committee
clearly exceeded its powers or so imperfectly
executed them: (a) in ruling on and declaring
valid the FRP; (b) in awarding damages to MMIC
which was not a party to the derivative suit; and
(c) in awarding moral damages to Jesus S.
Cabarrus, Sr.

The arbiters overstepped

their powers by declaring as
valid the proposed Financial
Restructuring Program.
The Arbitration Committee went beyond its
mandate and thus acted in excess of its powers
when it ruled on the validity of, and gave effect
to, the proposed FRP.
In submitting the case to arbitration, the parties
had mutually agreed to limit the issue to the
"validity of the foreclosure" and to transform the
relief prayed for therein into pure money claims.
There is absolutely no evidence that the DBP and
PNB agreed, expressly or impliedly, to the
proposed FRP. It cannot be overemphasized that a
FRP, as a contract, requires the consent of the
parties thereto. 47 The contract must bind both
contracting parties. 48 Private respondents even
by their own admission recognized that the FRP
had yet not been carried out and that the loans of
MMIC had not yet been converted into equity. 49
However, the Arbitration Committee not only
declared the FRP valid and effective, but also
converted the loans of MMIC into equity raising
the equity of DBP to 87%. 50
The Arbitration Committee ruled that there was
"a commitment to carry out the FRP" 51 on the
ground of promissory estoppel.
Similarly, the principle of promissory
estoppel applies in the present case
considering as we observed, the fact that
the government (that is, Alfredo Velayo)
was the FRP's proponent. Although the
plaintiffs are agreed that the government
executed no formal agreement, the fact
remains that the DBP itself which made
representations that the FRP constituted a
"way out" for MMIC. The Committee
believes that although the DBP did not
formally agree (assuming that the board
and stockholders' approvals were not
formal enough), it is bound nonetheless if
only for its conspicuous representations.
Although the DBP sat in the board in a dual
capacity as holder of 36% of MMIC's
equity (at that time) and as MMIC's creditor
23

 the DBP can not validly renege on its

commitments simply because at the same
time, it held interests against the MMIC.
The fact, of course, is that as APT itself
asserted, the FRP was being "carried out"
although apparently, it would supposedly
fall short of its targets. Assuming that the
FRP would fail to meet its targets, the DBP
and so this Committee holds can not,
in any event, brook any denial that it was
bound to begin with, and the fact is that
adequate or not (the FRP), the government
is still bound by virtue of its acts.
The FRP, of course, did not itself promise a
resounding success, although it raised
DBP's equity in MMIC to 87%. It is not an
excuse, however, for the government to
deny its commitments. 52
Atty. Sison, however, did not agree and correctly
observed that:
But the doctrine of promissory estoppel
can hardly find application here. The
nearest that there can be said of any
estoppel being present in this case is the
fact that the board of MMIC was, at the
time the FRP was adopted, mostly
composed of PNB and DBP representatives.
But those representatives, singly or
collectively, are not themselves PNB or
DBP. They are individuals with personalities
separate and distinct from the banks they
represent. PNB and DBP have different
boards with different members who may
have different decisions. It is unfair to
impose upon them the decision of the
board of another company and thus pin
them down on the equitable principle of
estoppel. Estoppel is a principle based on
equity and it is certainly not equitable to
apply it in this particular situation.
Otherwise the rights of entirely separate
distinct and autonomous legal entities like
PNB
and
DBP
with
thousands
of
stockholders will be suppressed and
rendered nugatory. 53
As a rule, a corporation exercises its powers,
including the power to enter into contracts,
through its board of directors. While a corporation
may appoint agents to enter into a contract in its
behalf, the agent should not exceed his
authority. 54 In the case at bar, there was no
showing that the representatives of PNB and DBP

in MMIC even had the requisite authority to enter

into a debt-for-equity swap. And if they had such
authority, there was no showing that the banks,
through their board of directors, had ratified the
FRP.
Further, how could the MMIC be entitled to a big
amount of moral damages when its credit
reputation was not exactly something to be
considered sound and wholesome. Under Article
2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may
possibly suffer. A corporation whose overdue and
unpaid debts to the Government alone reached a
tremendous amount of P22 Billion Pesos cannot
certainly have a solid business reputation to brag
about. As Atty. Sison in his separate opinion
persuasively put it:
Besides, it is not yet a well settled
jurisprudence that corporations are entitled
to moral damages. While the Supreme
Court may have awarded moral damages
to a corporation for besmirched reputation
in Mambulao vs. PNB, 22 SCRA 359, such
ruling cannot find application in this case.
It must be pointed out that when the
supposed wrongful act of foreclosure was
done, MMIC's credit reputation was no
longer a desirable one. The company then
was already suffering from serious financial
crisis which definitely projects an image
not compatible with good and wholesome
reputation. So it could not be said that
there was a "reputation" besmirched by
the act of foreclosure. 55
The arbiters exceeded their
authority in awarding damages
to MMIC, which is not impleaded
as a party to the derivative suit.
Civil Case No. 9900 filed before the RTC being a
derivative suit, MMIC should have been
impleaded as a party. It was not joined as a party
plaintiff or party defendant at any stage of the
proceedings. As it is, the award of damages to
MMIC, which was not a party before the
Arbitration Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit,
the corporation is the real party in interest while
the stockholder filing suit for the corporation's
24

behalf is only a nominal party. The corporation

should be included as a party in the suit.

legally done in view of section 16 of the

Corporation Law . . .;

An individual stockholder is permitted to

institute a derivative suit on behalf of the
corporation wherein he holds stock in order
to protect or vindicate corporate rights,
whenever the officials of the corporation
refuse to sue, or are the ones to be sued or
hold the control of the corporation. In such
actions, the suing stockholder is regarded
as a nominal party, with the corporation as
the real party in interest. . . . . 56

(3) the filing of such suits would conflict

with the duty of the management to sue
for the protection of all concerned;

It is a condition sine qua non that the corporation

be impleaded as a party because
. . . Not only is the corporation an
indispensable party, but it is also the
present rule that it must be served with
process. The reason given is that the
judgment must be made binding upon the
corporation in order that the corporation
may get the benefit of the suit and may
not bring a subsequent suit against the
same defendants for the same cause of
action. In other words the corporation must
be joined as party because it is its cause of
action that is being litigated and because
judgment must be a res ajudicata against
it. 57
The reasons given
individual suit are:

for

not

allowing

direct

(1) . . . "the universally recognized doctrine

that a stockholder in a corporation has no
title legal or equitable to the corporate
property; that both of these are in the
corporation itself for the benefit of the
stockholders." In other words, to allow
shareholders to sue separately would
conflict with the separate corporate entity
principle;
(2) . . . that the prior rights of the creditors
may be prejudiced. Thus, our Supreme
Court held in the case of Evangelista v.
Santos, that "the stockholders may not
directly
claim
those
damages
for
themselves for that would result in the
appropriation by, and the distribution
among them of part of the corporate
assets before the dissolution of the
corporation and the liquidation of its debts
and liabilities, something which cannot be

(4) it would produce wasteful multiplicity of

suits; and
(5) it would involve confusion in a
ascertaining the effect of partial recovery
by an individual on the damages
recoverable by the corporation for the
same act. 58
If at all an award was due MMIC, which it was not,
the
same
should
have
been
given sans deduction, regardless of whether or
not the party liable had equity in the corporation,
in view of the doctrine that a corporation has a
personality separate and distinct from its
individual stockholders or members. DBP's
alleged equity, even if it were indeed 87%, did
not give it ownership over any corporate
property, including the monetary award, its right
over said corporate property being a mere
expectancy or inchoate right. 59 Notably, the
stipulation even had the effect of prejudicing the
other creditors of MMIC.
The arbiters, likewise,
exceeded their authority
in awarding moral damages
to Jesus Cabarrus, Sr.
It is perplexing how the Arbitration Committee
can in one breath rule that the case before it is a
derivative suit, in which the aggrieved party or
the real party in interest is supposedly the MMIC,
and at the same time award moral damages to an
individual stockholder, to wit:
WHEREFORE,
premises
judgment is hereby rendered:

considered,

xxx xxx xxx

3. Ordering the defendant to pay to the
plaintiff, Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00, to be satisfied likewise
from the funds held under escrow pursuant
to the Escrow Agreement dated April 22,
25

1988 or to such subsequent escrow

agreement that would supersede it,
pursuant to paragraph (9), Compromise
and Arbitration Agreement, as and for
moral damages; . . . 60
The majority decision of the Arbitration
Committee sought to justify its award of moral
damages to Jesus S. Cabarrus, Sr. by pointing to
the fact that among the assets seized by the
government were assets belonging to Industrial
Enterprise Inc. (IEI), of which Cabarrus is the
majority stockholder. It then acknowledged that
Cabarrus had already recovered said assets in the
RTC, but that "he won no more than actual
damages. While the Committee cannot possibly
speak for the RTC, there is no doubt that Jesus S.
Cabarrus, Sr., suffered moral damages on account
of that specific foreclosure, damages the
Committee believes and so holds, he, Jesus S.
Cabarrus, Sr., may be awarded in this
proceeding." 61
Cabarrus cause of action for the seizure of the
assets belonging to IEI, of which he is the
majority stockholder, having been ventilated in a
complaint he previously filed with the RTC, from
which he obtained actual damages, he was
barred by res judicata from filing a similar case in
another court, this time asking for moral
damages which he failed to get from the earlier
case. 62 Worse, private respondents violated the
rule against non-forum shopping.
It is a basic postulate that a corporation has a
personality separate and distinct from its
stockholders. 63 The
properties
foreclosed
belonged to MMIC, not to its stockholders. Hence,
if wrong was committed in the foreclosure, it was
done against the corporation. Another reason is
that Jesus S. Cabarrus, Sr. cannot directly claim
those damages for himself that would result in
the appropriation by, and the distribution to, him
part of the corporation's assets before the
dissolution of the corporation and the liquidation
of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters nor
submitted to it. Moreover, said cause of action
had already been decided in a separate case. It is
thus quite patent that the arbitration committee
exceeded the authority granted to it by the
parties' Compromise and Arbitration Agreement
by awarding moral damages to Jesus S. Cabarrus,
Sr.

Atty. Sison, in his separate opinion, likewise

expressed befuddlement to the award of moral
damages to Jesus S. Cabarrus, Sr.:
It is clear and it cannot be disputed
therefore that based on these stipulated
issues, the partiesthemselves have agreed
that the basic ingredient of the causes of
action in this case is the wrong committed
on the corporation (MMIC) for the alleged
illegal foreclosure of its assets. By agreeing
to this stipulation, PLAINTIFFS themselves
(Cabarrus, et al.) admit that the cause of
action pertains only to the corporation
(MMIC) and that they are filing this for and
in behalf of MMIC.
Perforce this has to be so because it is the
basic rule in Corporation Law that "the
shareholders have no title, legal or
equitable to the property which is owned
by the corporation (13 Am. Jur. 165;
Pascual vs. Oresco, 14 Phil. 83). In Ganzon
& Sons vs. Register of Deeds, 6 SCRA 373,
the rule has been reiterated that "a
stockholder is not the co-owner of
corporate property." Since the property or
assets foreclosed belongs [sic] to MMIC,
the wrong committed, if any, is done
against the corporation. There is therefore
no direct injury or direct violation of the
rights of Cabarrus et al. There is no way,
legal or equitable, by which Cabarrus et al.
could recover damages in their personal
capacities even assuming or just because
the foreclosure is improper or invalid. The
Compromise and Arbitration Agreement
itself and the elementary principles of
Corporation Law say so. Therefore, I am
constrained to dissent from the award of
moral damages to Cabarrus. 64
From the foregoing discussions, it is evident that,
not only did the arbitration committee exceed its
powers or so imperfectly execute them, but also,
its findings and conclusions are palpably devoid
of any factual basis, and in manifest disregard of
the law.
We do not find it necessary to remand this case
to the RTC for appropriate action. The pleadings
and memoranda filed with this Court, as well as in
the Court of Appeals, raised and extensively
discussed the issues on the merits. Such being
the case, there is sufficient basis for us to resolve
the controversy between the parties anchored on
the records and the pleadings before us. 65
26

WHEREFORE, the Decision of the Court of Appeals

dated July 17, 1995, as well as the Orders of the
Regional Trial Court of Makati, Branch 62, dated
November 28, 1994 and January 19, 1995, is
hereby REVERSED and SET ASIDE, and the
decision of the Arbitration Committee is hereby
VACATED. SO ORDERED.

NIA filed a Compliance wherein it nominated six

arbitrators, from among whom CIAC appointed
Atty. Custodio O. Parlade, and made a
counterclaim for P1,000,000 as moral damages;
at least P100,000 as exemplary damages;
P100,000 as attorney's fees; and the costs of the
arbitration. 3

5. G.R. No. 129169 November 17, 1999

The two designated arbitrators appointed

Certified Public Accountant Joven B. Joaquin as
Chairman of the Arbitration Panel. The parties
were required to submit copies of the evidence
they intended to present during the proceedings
and were provided the draft Terms of Reference. 4

NATIONAL
IRRIGATION
ADMINISTRATION
(NIA), petitioner, vs. HONORABLE COURT OF
APPEALS (4th Division), CONSTRUCTION
INDUSTRY ARBITRATION COMMISSION, and
HYDRO
RESOURCES
CONTRACTORS
CORPORATION, respondents.
DAVIDE, JR., C.J.:
In this special civil action for certiorari under Rule
65 of the Rules of Court, the National Irrigation
Administration (hereafter NIA), seeks to annul
and set aside the Resolutions 1 of the Court of
Appeals in CA-GR. SP No. 37180 dated 28 June
1996 and 24 February 1997, which dismissed
respectively NIA's petition for certiorari and
prohibition against the Construction Industry
Arbitration Commission (hereafter CIAC), and the
motion for reconsideration thereafter filed.
Records show that in a competitive bidding held
by NIA in August 1978, Hydro Resources
Contractors Corporation (hereafter HYDRO) was
awarded Contract MPI-C-2 for the construction of
the main civil works of the Magat River MultiPurpose Project. The contract provided that
HYDRO would be paid partly in Philippine pesos
and partly in U.S. dollars. HYDRO substantially
completed the works under the contract in 1982
and final acceptance by NIA was made in 1984.
HYDRO thereafter determined that it still had an
account receivable from NIA representing the
dollar rate differential of the price escalation for
the contract. 2
After unsuccessfully pursuing its case with NIA,
HYDRO, on 7 December 1994, filed with the CIAC
a Request for Adjudication of the aforesaid claim.
HYDRO nominated six arbitrators for the
arbitration panel, from among whom CIAC
appointed Engr. Lauro M. Cruz. On 6 January
1995, NIA filed its Answer wherein it questioned
the jurisdiction of the CIAC alleging lack of cause
of action, laches and estoppel in view of HYDRO's
alleged failure to avail of its right to submit the
dispute to arbitration within the prescribed period
as provided in the contract. On the same date,

At the preliminary conference, NIA through its

counsel Atty. Joy C. Legaspi of the Office of the
Government Corporate Counsel, manifested that
it could not admit the genuineness of HYDRO's
evidence since NIA's records had already been
destroyed. NIA requested an opportunity to
examine the originals of the documents which
HYDRO agreed to provide. 5
After reaching an accord on the issues to be
considered by the arbitration panel, the parties
scheduled the dates of hearings and of
submission of simultaneous memoranda. 6
On 13 March 1995, NIA filed a Motion to
Dismiss 7 alleging lack of jurisdiction over the
disputes. NIA contended that there was no
agreement with HYDRO to submit the dispute to
CIAC for arbitration considering that the
construction contract was executed in 1978 and
the project completed in 1982, whereas the
Construction Industry Arbitration Law creating
CIAC was signed only in 1985; and that while they
have agreed to arbitration as a mode of
settlement of disputes, they could not have
contemplated submission of their disputes to
CIAC. NIA further argued that records show that it
had not voluntarily submitted itself to arbitration
by
CIAC
citing TESCO
Services, Inc. v. Hon. Abraham
Vera, et
8
al., wherein it was ruled:
CIAC did not acquire jurisdiction over the
dispute arising from the sub-contract
agreement between petitioner TESCO and
private respondent LAROSA. The records
do not show that the parties agreed to
submit the disputes to arbitration by the
CIAC . . . . While both parties in the subcontract had agreed to submit the matter
to arbitration, this was only between
themselves, no request having been made
27

by both with the CIAC. Hence, as already

stated, the CIAC, has no jurisdiction over
the dispute. . . . . Nowhere in the said
article (sub-contract) does it mention the
CIAC, much less, vest jurisdiction with the
CIAC.

CONTROVERSY,
THE
AUTHORITY
TO
DECIDE AND THE DECISION. IF IT IS NOT
APPEALED
SEASONABLY,
THE
SAME
BECOMES FINAL.

On 11 April 1995, the arbitral body issued an

order 9 which deferred the determination of the
motion to dismiss and resolved to proceed with
the hearing of the case on the merits as the
grounds cited by NIA did not seem to be
"indubitable."
NIA
filed
a
motion
for
reconsideration of the aforesaid Order. CIAC in
denying the motion for reconsideration ruled that
it has jurisdiction over the HYDRO's claim over
NIA pursuant to E.O 1008 and that the hearing
should proceed as scheduled. 10

NIA HAS TIMELY RAISED THE ISSUE OF

JURISDICTION. IT DID NOT WAIVE NOR IS IT
ESTOPPED FROM ASSAILING THE SAME.

On 26 May 1996, NIA filed with the Court of

Appeals an original action of certiorari and
prohibition with prayer for restraining order
and/or injunction, seeking to annul the Orders of
the CIAC for having been issued without or in
excess of jurisdiction. In support of its petition NIA
alleged that:

The Court of Appeals, after finding that there was

no grave abuse of discretion on the part of the
CIAC in issuing the aforesaid Orders, dismissed
the petition in its Resolution dated 28 June 1996.
NIA's motion for reconsideration of the said
decision was likewise denied by the Court of
Appeals on 26 February 1997.

A
RESPONDENT CIAC HAS NO AUTHORITY OR
JURIDICTION TO HEAR AND TRY THIS
DISPUTE BETWEEN THE HEREIN PARTIES AS
E.O. NO. 1008 HAD NO RETROACTIVE
EFFECT.
B
THE DISPUTE BETWEEN THE PARTIES
SHOULD BE SETTLED IN ACCORDANCE
WITH GC NO. 25, ART. 2046 OF THE CIVIL
CODE AND R.A. NO. 876 THE GOVERNING
LAWS AT THE TIME CONTRACT WAS
EXECUTED AND TERMINATED.

F
THE LEGAL DOCTRINE THAT JURISDICTION
IS DETERMINED BY THE STATUTE IN FORCE
AT THE TIME OF THE COMMENCEMENT OF
THE ACTION DOES NOT ONLY APPLY TO THE
INSTANT CASE. 11

On 2 June 1997, NIA filed before us an original

action for certiorari and prohibition with urgent
prayer for temporary restraining order and writ of
preliminary injunction, praying for the annulment
of the Resolutions of the Court of Appeals dated
28 June 1996 and 24 February 1997. In the said
special civil action, NIA merely reiterates the
issues it raised before the Court of Appeals. 12
We take judicial notice that on 10 June 1997, CIAC
rendered a decision in the main case in favor of
HYDRO. 13NIA assailed the said decision with the
Court of Appeals. In view of the pendency of the
present petitions before us the appellate court
issued a resolution dated 26 March 1998 holding
in abeyance the resolution of the same until after
the instant petitions have been finally decided. 14

C
E.O. NO. 1008 IS A SUBSTANTIVE LAW, NOT
MERELY PROCEDURAL AS RULED BY THE
CIAC.
D
AN INDORSEMENT OF THE AUDITOR
GENERAL DECIDING A CONTROVERSY IS A
DECISION BECAUSE ALL THE ELEMENTS
FOR
JUDGMENT
ARE
THERE;
THE

At the outset, we note that the petition suffers

from a procedural defect that warrants its
outright dismissal. The questioned resolutions of
the Court of Appeals have already become final
and executory by reason of the failure of NIA to
appeal therefrom. Instead of filing this petition
for certiorari under Rule 65 of the Rules of Court,
NIA should have filed a timely petition for review
under Rule 45.

28

There is no doubt that the Court of Appeals has

jurisdiction over the special civil action
for certiorari under Rule 65 filed before it by NIA.
The original jurisdiction of the Court of Appeals
over special civil actions for certiorari is vested
upon it under Section 9(1) of B.P. 129. This
jurisdiction is concurrent with the Supreme
Court 15 and with the Regional Trial Court. 16
Thus, since the Court of Appeals had jurisdiction
over the petition under Rule 65, any alleged
errors committed by it in the exercise of its
jurisdiction would be errors of judgment which are
reviewable by timely appeal and not by a special
civil action of certiorari. 17 If the aggrieved party
fails to do so within the reglementary period, and
the decision accordingly becomes final and
executory, he cannot avail himself of the writ
of certiorari, his predicament being the effect of
his deliberate inaction. 18
The appeal from a final disposition of the Court of
Appeals is a petition for review under Rule 45 and
not a special civil action under Rule 65 of the
Rules of Court, now Rule 45 and Rule 65,
respectively, of the 1997 Rules of Civil
Procedure. 19 Rule 45 is clear that decisions, final
orders or resolutions of the Court of Appeals in
any case, i.e., regardless of the nature of the
action or proceedings involved, may be appealed
to this Court by filing a petition for review, which
would be but a continuation of the appellate
process over the original case. 20 Under Rule 45
the reglementary period to appeal is fifteen (15)
days from notice of judgment or denial of motion
for reconsideration. 21
In the instant case the Resolution of the Court of
Appeals dated 24 February 1997 denying the
motion for reconsideration of its Resolution dated
28 June 1997 was received by NIA on 4 March
1997. Thus, it had until 19 March 1997 within
which to perfect its appeal. NIA did not appeal.
What it did was to file an original action
forcertiorari before this Court, reiterating the
issues and arguments it raised before the Court
of Appeals.
For the writ of certiorari under Rule 65 of the
Rules of Court to issue, a petitioner must show
that he has no plain, speedy and adequate
remedy in the ordinary course of law against its
perceived grievance. 22 A remedy is considered
"plain, speedy and adequate" if it will promptly
relieve the petitioner from the injurious effects of
the judgment and the acts of the lower court or
agency. 23 In this case, appeal was not only

available
remedy.

but

also

speedy

and

adequate

Obviously, NIA interposed the present special civil

action of certiorari not because it is the speedy
and adequate remedy but to make up for the
loss, through omission or oversight, of the right of
ordinary appeal. It is elementary that the special
civil action of certiorari is not and cannot be a
substitute for an appeal, where the latter remedy
is available, as it was in this case. A special civil
action under Rule 65 of the Rules of Court will not
be a cure for failure to timely file a petition for
review on certiorari under Rule 45 of the Rules of
Court. 24 Rule 65 is an independent action that
cannot be availed of as a substitute for the lost
remedy of an ordinary appeal, including that
under Rule 45, 25especially if such loss or lapse
was occasioned by one's own neglect or error in
the choice of remedies. 26
For obvious reasons the rules forbid recourse to a
special civil action for certiorari if appeal is
available,
as
the
remedies
of
appeal
and certiorari are mutually exclusive and not
alternative or successive. 27 Although there are
exceptions to the rules, none is present in the
case at bar. NIA failed to show circumstances that
will justify a deviation from the general rule as to
make available a petition for certiorari in lieu of
taking an appropriate appeal.
Based on the foregoing, the instant petition
should be dismissed.
In any case, even if the issue of technicality is
disregarded and recourse under Rule 65 is
allowed, the same result would be reached since
a review of the questioned resolutions of the CIAC
shows that it committed no grave abuse of
discretion.
Contrary to the claim of NIA, the CIAC has
jurisdiction over the controversy. Executive Order
No. 1008, otherwise known as the "Construction
Industry Arbitration Law" which was promulgated
on 4 February 1985, vests upon CIAC original and
exclusive jurisdiction over disputes arising from,
or connected with contracts entered into by
parties involved in construction in the Philippines,
whether the dispute arises before or after the
completion of the contract, or after the
abandonment or breach thereof. The disputes
may involve government or private contracts. For
the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to
voluntary arbitration.28
29

The complaint of HYDRO against NIA on the basis

of the contract executed between them was filed
on 7 December 1994, during the effectivity of
E.O. No. 1008. Hence, it is well within the
jurisdiction of CIAC. The jurisdiction of a court is
determined by the law in force at the time of the
commencement of the action. 29
NIA's argument that CIAC had no jurisdiction to
arbitrate on contract which preceded its
existence is untenable. E.O. 1008 is clear that the
CIAC has jurisdiction over all disputes arising from
or connected with construction contract whether
the dispute arises before or after the completion
of the contract. Thus, the date the parties
entered into a contract and the date of
completion of the same, even if these occurred
before the constitution of the CIAC, did not
automatically divest the CIAC of jurisdiction as
long as the dispute submitted for arbitration
arose after the constitution of the CIAC. Stated
differently, the jurisdiction of CIAC is over the
dispute, not the contract; and the instant dispute
having arisen when CIAC was already constituted,
the arbitral board was actually exercising current,
not retroactive, jurisdiction. As such, there is no
need to pass upon the issue of whether E.O. No.
1008 is a substantive or procedural statute.
NIA also contended that the CIAC did not acquire
jurisdiction over the dispute since it was only
HYDRO that requested for arbitration. It asserts
that to acquire jurisdiction over a case, as
provided under E.O. 1008, the request for
arbitration filed with CIAC should be made by
both parties, and hence the request by one party
is not enough.
It is undisputed that the contracts between
HYDRO and NIA contained an arbitration clause
wherein they agreed to submit to arbitration any
dispute between them that may arise before or
after the termination of the agreement.
Consequently, the claim of HYDRO having arisen
from the contract is arbitrable. NIA's reliance with
the ruling on the case of Tesco Services
Incorporated v. Vera, 30 is misplaced.
The 1988 CIAC Rules of Procedure which were
applied by this Court in Tesco case had been duly
amended by CIAC Resolutions No. 2-91 and 3-93,
Section 1 of Article III of which read as follows:
Submission to CIAC Jurisdiction An
arbitration clause in a construction
contract or a submission to arbitration of a
construction contract or a submission to

arbitration of a construction dispute shall

be deemed an agreement to submit an
existing or future controversy to CIAC
jurisdiction, notwithstanding the reference
to a different arbitration institution or
arbitral body in such contract or
submission. When a contract contains a
clause for the submission of a future
controversy to arbitration, it is not
necessary for the parties to enter into a
submission agreement before the claimant
may invoke the jurisdiction of CIAC.
Under the present Rules of Procedure, for a
particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the
parties agree to submit the same to voluntary
arbitration. Unlike in the original version of
Section 1, as applied in the Tesco case, the law as
it now stands does not provide that the parties
should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter
to acquire jurisdiction over the same. Rather, it is
plain and clear that as long as the parties agree
to submit to voluntary arbitration, regardless of
what forum they may choose, their agreement
will fall within the jurisdiction of the CIAC, such
that, even if they specifically choose another
forum, the parties will not be precluded from
electing to submit their dispute before the CIAC
because this right has been vested upon each
party by law, i.e., E.O. No. 1008. 31
Moreover, it is undeniable that NIA agreed to
submit the dispute for arbitration to the CIAC. NIA
through its counsel actively participated in the
arbitration proceedings by filing an answer with
counterclaim, as well as its compliance wherein it
nominated arbitrators to the proposed panel,
participating in the deliberations on, and the
formulation of, the Terms of Reference of the
arbitration proceeding, and examining the
documents submitted by HYDRO after NIA asked
for the originals of the said documents. 32
As to the defenses of laches and prescription,
they are evidentiary in nature which could not be
established by mere allegations in the pleadings
and must not be resolved in a motion to dismiss.
Those issues must be resolved at the trial of the
case on the merits wherein both parties will be
given ample opportunity to prove their respective
claims and defenses. 33 Under the rule 34 the
deferment of the resolution of the said issues
was, thus, in order. An allegation of prescription
can effectively be used in a motion to dismiss
only when the complaint on its face shows that
30

indeed the action has already prescribed. 35 In the

instant case, the issue of prescription and laches
cannot be resolved on the basis solely of the
complaint. It must, however, be pointed that
under the new rules, 36 deferment of the
resolution is no longer permitted. The court may
either grant the motion to dismiss, deny it, or
order the amendment of the pleading.
WHEREFORE, the instant petition is DISMISSED
for lack of merit. The Court of Appeals is hereby
DIRECTED to proceed with reasonable dispatch in
the disposition of C.A. G.R. No. 44527 and include
in the resolution thereof the issue of laches and
prescription. SO ORDERED.

TRANSPORTATION AND COMMUNICATIONS,

DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS,
SECRETARY
LEANDRO
M.
MENDOZA, in his capacity as Head of the
Department
of
Transportation
and
Communications, and SECRETARY SIMEON
A. DATUMANONG, in his capacity as Head of
the Department of Public Works and
Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES,
EDUARDO C. ZIALCITA, WILLY BUYSON
VILLARAMA,
PROSPERO
C.
NOGRALES,
PROSPERO A. PICHAY, JR., HARLIN CAST
ABAYON,
and
BENASING
O.
MACARANBON,respondents-intervenors,

6. G.R. No. 155001

x---------------------------------------------------------x

May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B.

CATAHAN, JOSE MARI B. REUNILLA, MANUEL
ANTONIO B. BOE, MAMERTO S. CLARA,
REUEL E. DIMALANTA, MORY V. DOMALAON,
CONRADO G. DIMAANO, LOLITA R. HIZON,
REMEDIOS P. ADOLFO, BIENVENIDO C.
HILARIO, MIASCOR WORKERS UNION NATIONAL LABOR UNION (MWU-NLU), and
PHILIPPINE
AIRLINES
EMPLOYEES
ASSOCIATION
(PALEA), petitioners, vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS
CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY,
DEPARTMENT
OF
TRANSPORTATION AND COMMUNICATIONS
and SECRETARY LEANDRO M. MENDOZA, in
his capacity as Head of the Department of
Transportation
and
Communications, respondents,
MIASCOR
GROUNDHANDLING
CORPORATION,
DNATA-WINGS
AVIATION
SYSTEMS
CORPORATION,
MACROASIAEUREST
SERVICES,
INC.,
MACROASIAMENZIES AIRPORT SERVICES CORPORATION,
MIASCOR
CATERING
SERVICES
CORPORATION,
MIASCOR
AIRCRAFT
MAINTENANCE CORPORATION, and MIASCOR
LOGISTICS
CORPORATION, petitioners-inintervention,
x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003
SALACNIB
F.
BATERINA,
CLAVEL
A.
MARTINEZ
and
CONSTANTINO
G.
JARAULA, petitioners, vs.
PHILIPPINE
INTERNATIONAL AIR TERMINALS CO., INC.,
MANILA
INTERNATIONAL
AIRPORT
AUTHORITY,
DEPARTMENT
OF

G.R. No. 155661 May 5, 2003

CEFERINO C. LOPEZ, RAMON M. SALES,
ALFREDO B. VALENCIA, MA. TERESA V.
GAERLAN, LEONARDO DE LA ROSA, DINA C.
DE
LEON,
VIRGIE
CATAMIN
RONALD
SCHLOBOM, ANGELITO SANTOS, MA. LUISA
M. PALCON and SAMAHANG MANGGAGAWA
SA
PALIPARAN
NG
PILIPINAS
(SMPP), petitioners, vs.
PHILIPPINE
INTERNATIONAL AIR TERMINALS CO., INC.,
MANILA
INTERNATIONAL
AIRPORT
AUTHORITY,
DEPARTMENT
OF
TRANSPORTATION AND COMMUNICATIONS,
SECRETARY LEANDRO M. MENDOZA, in his
capacity as Head of the Department of
Transportation
and
Communications, respondents.
PUNO, J.:
Petitioners and petitioners-in-intervention filed
the instant petitions for prohibition under Rule 65
of the Revised Rules of Court seeking to prohibit
the Manila International Airport Authority (MIAA)
and the Department of Transportation and
Communications (DOTC) and its Secretary from
implementing the following agreements executed
by the Philippine Government through the DOTC
and the MIAA and the Philippine International Air
Terminals Co., Inc. (PIATCO): (1) the Concession
Agreement signed on July 12, 1997, (2) the
Amended and Restated Concession Agreement
dated November 26, 1999, (3) the First
Supplement to the Amended and Restated
Concession Agreement dated August 27, 1999,
(4) the Second Supplement to the Amended and
Restated
Concession
Agreement
dated
September 4, 2000, and (5) the Third Supplement
31

to the Amended and Restated Concession

Agreement dated June 22, 2001 (collectively, the
PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the
services of Aeroport de Paris (ADP) to
conduct a comprehensive study of the
Ninoy Aquino International Airport (NAIA)
and determine whether the present airport
can cope with the traffic development up
to the year 2010. The study consisted of
two parts: first, traffic forecasts, capacity of
existing
facilities,
NAIA
future
requirements, proposed master plans and
development
plans;
and
second,
presentation of the preliminary design of
the passenger terminal building. The ADP
submitted a Draft Final Report to the DOTC
in December 1989.
Some time in 1993, six business leaders
consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr., Lucio Tan, George
Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the
possibility of investing in the construction
and operation of a new international
airport
terminal.
To
signify
their
commitment to pursue the project, they
formed the Asia's Emerging Dragon Corp.
(AEDC) which was registered with the
Securities and Exchange Commission (SEC)
on September 15, 1993.
On October 5, 1994, AEDC submitted an
unsolicited proposal to the Government
through
the
DOTC/MIAA
for
the
development
of
NAIA
International
Passenger Terminal III (NAIA IPT III) under a
build-operate-and-transfer
arrangement
pursuant to RA 6957 as amended by RA
7718 (BOT Law).1
On December 2, 1994, the DOTC issued Dept.
Order No. 94-832 constituting the Prequalification
Bids and Awards Committee (PBAC) for the
implementation of the NAIA IPT III project.
On March 27, 1995, then DOTC Secretary Jose
Garcia endorsed the proposal of AEDC to the
National Economic and Development Authority
(NEDA). A revised proposal, however, was
forwarded by the DOTC to NEDA on December 13,
1995. On January 5, 1996, the NEDA Investment
Coordinating Council (NEDA ICC) Technical

Board favorably endorsed the project to the ICC

Cabinet Committee which approved the same,
subject to certain conditions, on January 19,
1996. On February 13, 1996, the NEDA passed
Board Resolution No. 2 which approved the NAIA
IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused
the publication in two daily newspapers of an
invitation for competitive or comparative
proposals on AEDC's unsolicited proposal, in
accordance with Sec. 4-A of RA 6957, as
amended. The alternative bidders were required
to submit three (3) sealed envelopes on or before
5:00 p.m. of September 20, 1996. The first
envelope should contain the Prequalification
Documents, the second envelope the Technical
Proposal, and the third envelope the Financial
Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued,
postponing the availment of the Bid Documents
and the submission of the comparative bid
proposals. Interested firms were permitted to
obtain the Request for Proposal Documents
beginning June 28, 1996, upon submission of a
written application and payment of a nonrefundable fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided
among others that the proponent must have
adequate capability to sustain the financing
requirement for the detailed engineering, design,
construction, operation, and maintenance phases
of the project. The proponent would be evaluated
based on its ability to provide a minimum amount
of equity to the project, and its capacity to secure
external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin
No. 2 inviting all bidders to a pre-bid conference
on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC
Bulletin No. 3 amending the Bid Documents. The
following amendments were made on the Bid
Documents:
a. Aside from the fixed Annual Guaranteed
Payment, the proponent shall include in its
financial proposal an additional percentage
of gross revenue share of the Government,
as follows:
i. First 5 years

5.0%

ii. Next 10 years

7.5%
32

iii. Next 10 years

10.0%

b. The amount of the fixed Annual

Guaranteed Payment shall be subject of
the price challenge. Proponent may offer
an Annual Guaranteed Payment which
need not be of equal amount, but payment
of which shall start upon site possession.
c. The project proponent must have
adequate
capability
to
sustain
the
financing requirement for the detailed
engineering, design, construction, and/or
operation and maintenance phases of the
project as the case may be. For purposes
of pre-qualification, this capability shall be
measured in terms of:
i. Proof of the availability of the
project
proponent
and/or
the
consortium to provide the minimum
amount of equity for the project; and
ii. a letter testimonial from reputable
banks attesting that the project
proponent and/or the members of
the consortium are banking with
them, that the project proponent
and/or the members are of good
financial
standing,
and
have
adequate resources.
d. The basis for the prequalification shall
be the proponent's compliance with the
minimum
technical
and
financial
requirements
provided
in
the
Bid
Documents and the IRR of the BOT Law.
The minimum amount of equity shall be
30% of the Project Cost.
e. Amendments to the draft Concession
Agreement shall be issued from time to
time. Said amendments shall only cover
items that would not materially affect the
preparation of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid
Conference was held where certain clarifications
were made. Upon the request of prospective
bidder People's Air Cargo & Warehousing Co., Inc
(Paircargo), the PBAC warranted that based on
Sec. 11.6, Rule 11 of the Implementing Rules and
Regulations of the BOT Law, only the proposed
Annual Guaranteed Payment submitted by the
challengers would be revealed to AEDC, and that
the challengers' technical and financial proposals

would remain confidential. The PBAC also clarified

that the list of revenue sources contained in
Annex 4.2a of the Bid Documents was merely
indicative and that other revenue sources may be
included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that
only those fees and charges denominated as
Public Utility Fees would be subject to regulation,
and those charges which would be actually
deemed Public Utility Fees could still be revised,
depending on the outcome of PBAC's query on
the matter with the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin
No. 5, entitled "Answers to the Queries of
PAIRCARGO as Per Letter Dated September 3 and
10, 1996." Paircargo's queries and the PBAC's
responses were as follows:
1. It is difficult for Paircargo and Associates
to meet the required minimum equity
requirement as prescribed in Section 8.3.4
of the Bid Documents considering that the
capitalization of each member company is
so structured to meet the requirements
and needs of their current respective
business undertaking/activities. In order to
comply with this equity requirement,
Paircargo is requesting PBAC to just allow
each member of (sic) corporation of the
Joint Venture to just execute an agreement
that embodies a commitment to infuse the
required capital in case the project is
awarded to the Joint Venture instead of
increasing each corporation's current
authorized
capital
stock
just
for
prequalification purposes.
In prequalification, the agency is interested
in one's financial capability at the time of
prequalification, not future or potential
capability.
A commitment to put up equity once
awarded the project is not enough to
establish that "present" financial capability.
However, total financial capability of all
member companies of the Consortium, to
be
established
by
submitting
the
respective companies' audited financial
statements, shall be acceptable.
2. At present, Paircargo is negotiating with
banks and other institutions for the
extension of a Performance Security to the
joint venture in the event that the
Concessions Agreement (sic) is awarded to
33

them. However, Paircargo is being required

to submit a copy of the draft concession as
one of the documentary requirements.
Therefore, Paircargo is requesting that
they'd (sic) be furnished copy of the
approved negotiated agreement between
the PBAC and the AEDC at the soonest
possible time.
A copy of the draft Concession Agreement
is included in the Bid Documents. Any
material changes would be made known to
prospective
challengers
through
bid
bulletins. However, a final version will be
issued before the award of contract.
The PBAC also stated that it would require AEDC
to sign Supplement C of the Bid Documents
(Acceptance of Criteria and Waiver of Rights to
Enjoin Project) and to submit the same with the
required Bid Security.
On September 20, 1996, the consortium
composed of People's Air Cargo and Warehousing
Co., Inc. (Paircargo), Phil. Air and Grounds
Services, Inc. (PAGS) and Security Bank Corp.
(Security
Bank)
(collectively,
Paircargo
Consortium) submitted their competitive proposal
to the PBAC. On September 23, 1996, the PBAC
opened the first envelope containing the
prequalification documents of the Paircargo
Consortium. On the following day, September 24,
1996, the PBAC prequalified the Paircargo
Consortium.
On September 26, 1996, AEDC informed the
PBAC in writing of its reservations as regards the
Paircargo Consortium, which include:
a. The lack of corporate approvals and
financial capability of PAIRCARGO;
b. The lack of corporate approvals and
financial capability of PAGS;
c. The prohibition imposed by RA 337, as
amended (the General Banking Act) on the
amount that Security Bank could legally
invest in the project;
d. The inclusion of Siemens as a contractor
of the PAIRCARGO Joint Venture, for
prequalification purposes; and
e. The appointment of Lufthansa as the
facility operator, in view of the Philippine

requirement in the operation of a public

utility.
The PBAC gave its reply on October 2, 1996,
informing AEDC that it had considered the issues
raised by the latter, and that based on the
documents submitted by Paircargo and the
established prequalification criteria, the PBAC had
found that the challenger, Paircargo, had
prequalified to undertake the project. The
Secretary of the DOTC approved the finding of the
PBAC.
The PBAC then proceeded with the opening of the
second envelope of the Paircargo Consortium
which contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its
objections, particularly with respect to Paircargo's
financial capability, in view of the restrictions
imposed by Section 21-B of the General Banking
Act and Sections 1380 and 1381 of the Manual
Regulations for Banks and Other Financial
Intermediaries. On October 7, 1996, AEDC again
manifested its objections and requested that it be
furnished with excerpts of the PBAC meeting and
the accompanying technical evaluation report
where each of the issues they raised were
addressed.
On October 16, 1996, the PBAC opened the third
envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial
proposals. Both proponents offered to build the
NAIA Passenger Terminal III for at least $350
million at no cost to the government and to pay
the government: 5% share in gross revenues for
the first five years of operation, 7.5% share in
gross revenues for the next ten years of
operation, and 10% share in gross revenues for
the last ten years of operation, in accordance
with the Bid Documents. However, in addition to
the foregoing, AEDC offered to pay the
government a total of P135 million as guaranteed
payment for 27 years while Paircargo Consortium
offered to pay the government a total of P17.75
billion for the same period.
Thus, the PBAC formally informed AEDC that it
had accepted the price proposal submitted by the
Paircargo Consortium, and gave AEDC 30 working
days or until November 28, 1996 within which to
match the said bid, otherwise, the project would
be awarded to Paircargo.
As AEDC failed to match the proposal within the
30-day period, then DOTC Secretary Amado
34

Lagdameo, on December 11, 1996, issued a

notice to Paircargo Consortium regarding AEDC's
failure to match the proposal.
On February 27, 1997, Paircargo Consortium
incorporated into Philippine International Airport
Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue
preference given to PIATCO and reiterated its
objections as regards the prequalification of
PIATCO.
On April 11, 1997, the DOTC submitted the
concession agreement for the second-pass
approval of the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional
Trial Court of Pasig a Petition for Declaration of
Nullity of the Proceedings, Mandamus and
Injunction against the Secretary of the DOTC, the
Chairman of the PBAC, the voting members of the
PBAC and Pantaleon D. Alvarez, in his capacity as
Chairman of the PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad
referendum to facilitate the approval, on a noobjection basis, of the BOT agreement between
the
DOTC
and
PIATCO.
As
the ad
referendum gathered only four (4) of the required
six (6) signatures, the NEDA merely noted the
agreement.
On July 9, 1997, the DOTC issued the notice of
award for the project to PIATCO.
On July 12, 1997, the Government, through then
DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the
"Concession Agreement for the Build-Operateand-Transfer Arrangement of the Ninoy Aquino
International Airport Passenger Terminal III" (1997
Concession
Agreement).
The
Government
granted PIATCO the franchise to operate and
maintain the said terminal during the concession
period and to collect the fees, rentals and other
charges in accordance with the rates or
schedules stipulated in the 1997 Concession
Agreement. The Agreement provided that the
concession period shall be for twenty-five (25)
years commencing from the in-service date, and
may be renewed at the option of the Government
for a period not exceeding twenty-five (25) years.
At the end of the concession period, PIATCO shall
transfer the development facility to MIAA.

On November 26, 1998, the Government and

PIATCO signed an Amended and Restated
Concession Agreement (ARCA). Among the
provisions of the 1997 Concession Agreement
that were amended by the ARCA were: Sec. 1.11
pertaining to the definition of "certificate of
completion"; Sec. 2.05 pertaining to the Special
Obligations of GRP; Sec. 3.02 (a) dealing with the
exclusivity of the franchise given to the
Concessionaire; Sec. 4.04 concerning the
assignment by Concessionaire of its interest in
the Development Facility; Sec. 5.08 (c) dealing
with the proceeds of Concessionaire's insurance;
Sec. 5.10 with respect to the temporary take-over
of operations by GRP; Sec. 5.16 pertaining to the
taxes, duties and other imposts that may be
levied on the Concessionaire; Sec. 6.03 as
regards the periodic adjustment of public utility
fees and charges; the entire Article VIII
concerning the provisions on the termination of
the contract; and Sec. 10.02 providing for the
venue of the arbitration proceedings in case a
dispute or controversy arises between the parties
to the agreement.
Subsequently, the Government and PIATCO
signed three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the
Second Supplement on September 4, 2000; and
the Third Supplement on June 22, 2001
(collectively, Supplements).
The First Supplement to the ARCA amended Sec.
1.36 of the ARCA defining "Revenues" or "Gross
Revenues"; Sec. 2.05 (d) of the ARCA referring to
the obligation of MIAA to provide sufficient funds
for the upkeep, maintenance, repair and/or
replacement of all airport facilities and equipment
which are owned or operated by MIAA; and
further providing additional special obligations on
the part of GRP aside from those already
enumerated in Sec. 2.05 of the ARCA. The First
Supplement also provided a stipulation as regards
the construction of a surface road to connect
NAIA Terminal II and Terminal III in lieu of the
proposed access tunnel crossing Runway 13/31;
the swapping of obligations between GRP and
PIATCO regarding the improvement of Sales Road;
and the changes in the timetable. It also
amended Sec. 6.01 (c) of the ARCA pertaining to
the Disposition of Terminal Fees; Sec. 6.02 of the
ARCA by inserting an introductory paragraph; and
Sec. 6.02 (a) (iii) of the ARCA referring to the
Payments of Percentage Share in Gross
Revenues.

35

The Second Supplement to the ARCA contained

provisions concerning the clearing, removal,
demolition or disposal of subterranean structures
uncovered or discovered at the site of the
construction
of
the
terminal
by
the
Concessionaire. It defined the scope of works; it
provided for the procedure for the demolition of
the said structures and the consideration for the
same which the GRP shall pay PIATCO; it provided
for
time
extensions,
incremental
and
consequential costs and losses consequent to the
existence of such structures; and it provided for
some additional obligations on the part of PIATCO
as regards the said structures.
Finally, the Third Supplement provided for the
obligations of the Concessionaire as regards the
construction of the surface road connecting
Terminals II and III.
Meanwhile, the MIAA which is charged with the
maintenance and operation of the NAIA Terminals
I and II, had existing concession contracts with
various service providers to offer international
airline airport services, such as in-flight catering,
passenger handling, ramp and ground support,
aircraft maintenance and provisions, cargo
handling and warehousing, and other services, to
several international airlines at the NAIA. Some of
these service providers are the Miascor Group,
DNATA-Wings Aviation Systems Corp., and the
MacroAsia Group. Miascor, DNATA and MacroAsia,
together with Philippine Airlines (PAL), are the
dominant players in the industry with an
aggregate market share of 70%.
On September 17, 2002, the workers of the
international airline service providers, claiming
that they stand to lose their employment upon
the
implementation
of
the
questioned
agreements, filed before this Court a petition for
prohibition to enjoin the enforcement of said
agreements.2
On October 15, 2002, the service providers,
joining the cause of the petitioning workers, filed
a motion for intervention and a petition-inintervention.
On October 24, 2002, Congressmen Salacnib
Baterina, Clavel Martinez and Constantino Jaraula
filed a similar petition with this Court. 3
On November 6, 2002, several employees of the
MIAA likewise filed a petition assailing the legality
of the various agreements.4

On December 11, 2002. another group of

Congressmen, Hon. Jacinto V. Paras, Rafael P.
Nantes, Eduardo C. Zialcita, Willie B. Villarama,
Prospero C. Nograles, Prospero A. Pichay, Jr.,
Harlin Cast Abayon and Benasing O. Macaranbon,
moved to intervene in the case as RespondentsIntervenors. They filed their Comment-InIntervention defending the validity of the assailed
agreements and praying for the dismissal of the
petitions.
During the pendency of the case before this
Court, President Gloria Macapagal Arroyo, on
November 29, 2002, in her speech at the 2002
Golden Shell Export Awards at Malacaang
Palace, stated that she will not "honor (PIATCO)
contracts which the Executive Branch's legal
offices have concluded (as) null and void." 5
Respondent PIATCO filed its Comments to the
present petitions on November 7 and 27, 2002.
The Office of the Solicitor General and the Office
of the Government Corporate Counsel filed their
respective Comments in behalf of the public
respondents.
On December 10, 2002, the Court heard the case
on oral argument. After the oral argument, the
Court then resolved in open court to require the
parties to file simultaneously their respective
Memoranda in amplification of the issues heard in
the oral arguments within 30 days and to explore
the possibility of arbitration or mediation as
provided in the challenged contracts.
In their consolidated Memorandum, the Office of
the Solicitor General and the Office of the
Government Corporate Counsel prayed that the
present petitions be given due course and that
judgment be rendered declaring the 1997
Concession Agreement, the ARCA and the
Supplements thereto void for being contrary to
the Constitution, the BOT Law and its
Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed
the Court that on March 4, 2003 PIATCO
commenced arbitration proceedings before the
International
Chamber
of
Commerce,
International Court of Arbitration (ICC) by filing a
Request for Arbitration with the Secretariat of the
ICC against the Government of the Republic of
the Philippines acting through the DOTC and
MIAA.
In the present cases, the Court is again faced
with the task of resolving complicated issues
36

made difficult by their intersecting legal and

economic implications. The Court is aware of the
far reaching fall out effects of the ruling which it
makes today. For more than a century and
whenever the exigencies of the times demand it,
this Court has never shirked from its solemn duty
to dispense justice and resolve "actual
controversies involving rights which are legally
demandable and enforceable, and to determine
whether or not there has been grave abuse of
discretion amounting to lack or excess of
jurisdiction."6 To be sure, this Court will not begin
to do otherwise today.
We shall first dispose of the procedural
issues raised by respondent PIATCO which they
allege will bar the resolution of the instant
controversy.
Petitioners' Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are
employees of various service providers 7 having
separate concession contracts with MIAA and
continuing service agreements with various
international airlines to provide in-flight catering,
passenger handling, ramp and ground support,
aircraft maintenance and provisions, cargo
handling and warehousing and other services.
Also included as petitioners are labor unions
MIASCOR Workers Union-National Labor Union
and Philippine Airlines Employees Association.
These petitioners filed the instant action for
prohibition as taxpayers and as parties whose
rights and interests stand to be violated by the
implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all
corporations organized and existing under
Philippine laws engaged in the business of
providing in-flight catering, passenger handling,
ramp and ground support, aircraft maintenance
and provisions, cargo handling and warehousing
and other services to several international
airlines at the Ninoy Aquino International Airport.
Petitioners-Intervenors allege that as tax-paying
international airline and airport-related service
operators, each one of them stands to be
irreparably injured by the implementation of the
PIATCO Contracts. Each of the petitionersintervenors have separate and subsisting
concession agreements with MIAA and with
various international airlines which they allege

are being interfered

respondent PIATCO.

with

and

violated

by

In G.R. No. 155661, petitioners constitute

employees of MIAA and Samahang Manggagawa
sa Paliparan ng Pilipinas - a legitimate labor union
and accredited as the sole and exclusive
bargaining agent of all the employees in MIAA.
Petitioners anchor their petition for prohibition on
the nullity of the contracts entered into by the
Government and PIATCO regarding the buildoperate-and-transfer of the NAIA IPT III. They filed
the petition as taxpayers and persons who have a
legitimate
interest
to
protect
in
the
implementation of the PIATCO Contracts.
Petitioners in both cases raise the argument that
the PIATCO Contracts contain stipulations which
directly contravene numerous provisions of the
Constitution, specific provisions of the BOT Law
and its Implementing Rules and Regulations, and
public policy. Petitioners contend that the DOTC
and the MIAA, by entering into said contracts,
have committed grave abuse of discretion
amounting to lack or excess of jurisdiction which
can be remedied only by a writ of prohibition,
there being no plain, speedy or adequate remedy
in the ordinary course of law.
In particular, petitioners assail the provisions in
the 1997 Concession Agreement and the ARCA
which grant PIATCO the exclusive right to operate
a commercial international passenger terminal
within the Island of Luzon, except those
international airports already existing at the time
of the execution of the agreement. The contracts
further provide that upon the commencement of
operations at the NAIA IPT III, the Government
shall cause the closure of Ninoy Aquino
International Airport Passenger Terminals I and II
as international passenger terminals. With
respect to existing concession agreements
between MIAA and international airport service
providers
regarding
certain
services
or
operations, the 1997 Concession Agreement and
the ARCA uniformly provide that such services or
operations will not be carried over to the NAIA IPT
III and PIATCO is under no obligation to permit
such carry over except through a separate
agreement duly entered into with PIATCO. 8
With respect to the petitioning service providers
and their employees, upon the commencement of
operations of the NAIA IPT III, they allege that
they will be effectively barred from providing
international airline airport services at the NAIA
Terminals I and II as all international airlines and
37

passengers will be diverted to the NAIA IPT III.

The petitioning service providers will thus be
compelled to contract with PIATCO alone for such
services, with no assurance that subsisting
contracts with MIAA and other international
airlines will be respected. Petitioning service
providers stress that despite the very competitive
market, the substantial capital investments
required and the high rate of fees, they entered
into their respective contracts with the MIAA with
the understanding that the said contracts will be
in force for the stipulated period, and thereafter,
renewed so as to allow each of the petitioning
service providers to recoup their investments and
obtain a reasonable return thereon.
Petitioning
employees
of
various
service
providers at the NAIA Terminals I and II and of
MIAA on the other hand allege that with the
closure of the NAIA Terminals I and II as
international passenger terminals under the
PIATCO
Contracts,
they
stand
to
lose
employment.
The question on legal standing is whether such
parties have "alleged such a personal stake in the
outcome of the controversy as to assure that
concrete adverseness which sharpens the
presentation of issues upon which the court so
largely depends for illumination of difficult
constitutional questions."9 Accordingly, it has
been held that the interest of a person assailing
the constitutionality of a statute must be direct
and personal. He must be able to show, not only
that the law or any government act is invalid, but
also that he sustained or is in imminent danger of
sustaining some direct injury as a result of its
enforcement, and not merely that he suffers
thereby in some indefinite way. It must appear
that the person complaining has been or is about
to be denied some right or privilege to which he
is lawfully entitled or that he is about to be
subjected to some burdens or penalties by reason
of the statute or act complained of.10
We hold that petitioners have the requisite
standing. In
the
above-mentioned
cases,
petitioners have a direct and substantial interest
to protect by reason of the implementation of the
PIATCO Contracts. They stand to lose their source
of livelihood, a property right which is zealously
protected
by
the
Constitution.
Moreover,
subsisting concession agreements between MIAA
and petitioners-intervenors and service contracts
between international airlines and petitionersintervenors stand to be nullified or terminated by
the operation of the NAIA IPT III under the PIATCO

Contracts. The financial prejudice brought about

by the PIATCO Contracts on petitioners and
petitioners-intervenors in these cases are
legitimate interests sufficient to confer on them
the requisite standing to file the instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition
for prohibition as members of the House of
Representatives, citizens and taxpayers. They
allege that as members of the House of
Representatives, they are especially interested in
the PIATCO Contracts, because the contracts
compel the Government and/or the House of
Representatives to appropriate funds necessary
to comply with the provisions therein. 11 They cite
provisions of the PIATCO Contracts which require
disbursement of unappropriated amounts in
compliance with the contractual obligations of the
Government. They allege that the Government
obligations in the PIATCO Contracts which compel
government expenditure without appropriation is
a curtailment of their prerogatives as legislators,
contrary to the mandate of the Constitution that
"[n]o money shall be paid out of the treasury
except in pursuance of an appropriation made by
law."12
Standing is a peculiar concept in constitutional
law because in some cases, suits are not brought
by parties who have been personally injured by
the operation of a law or any other government
act but by concerned citizens, taxpayers or voters
who actually sue in the public interest. Although
we are not unmindful of the cases of Imus
Electric
Co.
v.
Municipality
of
Imus13 and Gonzales v. Raquiza14 wherein this
Court held that appropriation must be made only
on amounts immediately demandable, public
interest demands that we take a more
liberal view in determining whether the
petitioners suing as legislators, taxpayers
and citizens have locus standi to file the
instant petition. In Kilosbayan, Inc. v.
Guingona,15 this Court held "[i]n line with the
liberal
policy
of
this
Court
on locus
standi, ordinary taxpayers, members of Congress,
and even association of planters, and non-profit
civic organizations were allowed to initiate and
prosecute actions before this Court to question
the constitutionality or validity of laws, acts,
decisions,
rulings,
or
orders
of
various
government
agencies
or
instrumentalities."16 Further,
"insofar
as
taxpayers' suits are concerned . . . (this Court)
is not devoid of discretion as to whether or not
38

it should be entertained."17 As such ". . . even if,

strictly speaking, they [the petitioners] are not
covered by the definition, it is still within the wide
discretion of the Court to waive the requirement
and so remove the impediment to its addressing
and resolving the serious constitutional questions
raised."18 In view of the serious legal questions
involved and their impact on public interest, we
resolve to grant standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court
is without jurisdiction to review the instant cases
as factual issues are involved which this Court is
ill-equipped to resolve. Moreover, PIATCO alleges
that submission of this controversy to this Court
at the first instance is a violation of the rule on
hierarchy of courts. They contend that trial courts
have concurrent jurisdiction with this Court with
respect to a special civil action for prohibition and
hence, following the rule on hierarchy of courts,
resort must first be had before the trial courts.
After a thorough study and careful evaluation of
the issues involved, this Court is of the view that
the crux of the instant controversy involves
significant legal questions. The facts necessary
to resolve these legal questions are well
established and, hence, need not be determined
by a trial court.
The rule on hierarchy of courts will not also
prevent this Court from assuming jurisdiction
over the cases at bar. The said rule may be
relaxed when the redress desired cannot be
obtained in the appropriate courts or where
exceptional and compelling circumstances justify
availment of a remedy within and calling for the
exercise of this Court's primary jurisdiction.19
It
is
easy
to
discern
that exceptional
circumstances exist in the cases at bar that call
for the relaxation of the rule. Both petitioners and
respondents agree that these cases are
of transcendental importance as they involve
the construction and operation of the country's
premier international airport. Moreover, the
crucial issues submitted for resolution are of first
impression and they entail the proper legal
interpretation
of
key
provisions
of
the
Constitution, the BOT Law and its Implementing
Rules and Regulations. Thus, considering the
nature of the controversy before the Court,
procedural bars may be lowered to give way for
the speedy disposition of the instant cases.

Legal Effect of the Commencement

of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which
must be overcome. The Court is aware that
arbitration proceedings pursuant to Section 10.02
of the ARCA have been filed at the instance of
respondent PIATCO. Again, we hold that the
arbitration step taken by PIATCO will not oust this
Court of its jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of
Appeals,20 even after finding that the arbitration
clause in the Distributorship Agreement in
question is valid and the dispute between the
parties is arbitrable, this Court affirmed the trial
court's decision denying petitioner's Motion to
Suspend Proceedings pursuant to the arbitration
clause under the contract. In so ruling, this Court
held that as contracts produce legal effect
between the parties, their assigns and heirs, only
the parties to the Distributorship Agreement are
bound by its terms, including the arbitration
clause stipulated therein. This Court ruled that
arbitration proceedings could be called for
but only with respect to the parties to the
contract in question. Considering that there are
parties to the case who are neither parties to the
Distributorship Agreement nor heirs or assigns of
the parties thereto, this Court, citing its previous
ruling
in
Salas,
Jr.
v.
Laperal
Realty
Corporation,21 held that to tolerate the splitting of
proceedings by allowing arbitration as to some of
the parties on the one hand and trial for the
others on the other hand would, in effect, result
in multiplicity
of
suits,
duplicitous
procedure and unnecessary delay.22 Thus, we
ruled that the interest of justice would best be
served if the trial court hears and adjudicates the
case in a single and complete proceeding.
It is established that petitioners in the present
cases who have presented legitimate interests in
the resolution of the controversy are not parties
to the PIATCO Contracts. Accordingly, they
cannot be bound by the arbitration clause
provided for in the ARCA and hence, cannot be
compelled to submit to arbitration proceedings. A
speedy and decisive resolution of all the
critical issues in the present controversy,
including those raised by petitioners,
cannot
be
made
before
an
arbitral
tribunal. The object of arbitration is precisely to
allow an expeditious determination of a dispute.
39

This objective would not be met if this Court were

to allow the parties to settle the cases by
arbitration as there are certain issues involving
non-parties to the PIATCO Contracts which the
arbitral tribunal will not be equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo
Consortium, PIATCO's predecessor, was not a duly
pre-qualified bidder on the unsolicited proposal
submitted by AEDC as the Paircargo Consortium
failed to meet the financial capability required
under the BOT Law and the Bid Documents. They
allege that in computing the ability of the
Paircargo Consortium to meet the minimum
equity requirements for the project, the entire
net worth of Security Bank, a member of
the consortium, should not be considered.
PIATCO relies, on the other hand, on the strength
of the Memorandum dated October 14, 1996
issued by the DOTC Undersecretary Primitivo C.
Cal stating that the Paircargo Consortium is found
to
have
a
combined
net
worth
of
P3,900,000,000.00, sufficient to meet the equity
requirements
of
the
project.
The
said
Memorandum was in response to a letter from Mr.
Antonio Henson of AEDC to President Fidel V.
Ramos questioning the financial capability of the
Paircargo Consortium on the ground that it does
not have the financial resources to put up the
required minimum equity of P2,700,000,000.00.
This contention is based on the restriction under
R.A. No. 337, as amended or the General Banking
Act that a commercial bank cannot invest in any
single enterprise in an amount more than 15% of
its net worth. In the said Memorandum,
Undersecretary Cal opined:
The Bid Documents, as clarified through
Bid Bulletin Nos. 3 and 5, require that
financial capability will be evaluated based
on total financial capability of all the
member companies of the [Paircargo]
Consortium. In this connection, the
Challenger was found to have a combined
net worth of P3,926,421,242.00 that could
support a project costing approximately
P13 Billion.

It is not a requirement that the net worth

must be "unrestricted." To impose that as a
requirement now will be nothing less than
unfair.
The financial statement or the net worth is
not the sole basis in establishing financial
capability. As stated in Bid Bulletin No. 3,
financial capability may also be established
by testimonial letters issued by reputable
banks. The Challenger has complied with
this requirement.
To recap, net worth reflected in the
Financial Statement should not be taken as
the amount of the money to be used to
answer the required thirty percent (30%)
equity of the challenger but rather to be
used in establishing if there is enough
basis to believe that the challenger can
comply with the required 30% equity. In
fact, proof of sufficient equity is required as
one of the conditions for award of contract
(Section 12.1 IRR of the BOT Law) but not
for pre-qualification (Section 5.4 of the
same document).23
Under the BOT Law, in case of a buildoperate-and-transfer arrangement, the
contract shall be awarded to the bidder
"who, having satisfied the minimum
financial,
technical,
organizational
and legal standards" required by the
law, has submitted the lowest bid and most
favorable terms of the project.24 Further,
the
1994
Implementing
Rules
and
Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx

xxx

xxx

c.
Financial
Capability:
The
project
proponent must have adequate capability
to sustain the financing requirements for
the
detailed
engineering
design,
construction
and/or
operation
and
maintenance phases of the project, as the
case may be. For purposes of prequalification, this capability shall be
measured in terms of (i) proof of the
ability of the project proponent and/or
the consortium to provide a minimum
amount of equity to the project, and
(ii) a letter testimonial from reputable
banks attesting that the project
proponent and/or members of the
40

consortium are banking with them,

that they are in good financial
standing,
and
that
they
have
adequate resources. The government
agency/LGU concerned shall determine on
a project-to-project basis and before prequalification, the minimum amount of
equity needed. (emphasis supplied)
Pursuant to this provision, the PBAC issued PBAC
Bulletin No. 3 dated August 16, 1996 amending
the financial capability requirements for prequalification of the project proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be
on the compliance of the proponent to the
minimum
technical
and
financial
requirements
provided
in
the
Bid
Documents and in the IRR of the BOT Law,
R.A. No. 6957, as amended by R.A. 7718.
The minimum amount of equity to which
the proponent's financial capability will be
based shall be thirty percent (30%) of
the project cost instead of the twenty
percent (20%) specified in Section
3.6.4 of the Bid Documents. This is to
correlate with the required debt-to-equity
ratio of 70:30 in Section 2.01a of the draft
concession agreement. The debt portion of
the project financing should not exceed
70% of the actual project cost.
Accordingly, based on the above provisions of
law, the Paircargo Consortium or any challenger
to the unsolicited proposal of AEDC has to show
that
it
possesses
the
requisite financial
capability to undertake the project in the
minimum amount of 30% of the project
cost through (i) proof of the ability to provide a
minimum amount of equity to the project, and (ii)
a letter testimonial from reputable banks
attesting that the project proponent or members
of the consortium are banking with them, that
they are in good financial standing, and that they
have adequate resources.
As the minimum project cost was estimated to be
US$350,000,000.00
or
roughly
P9,183,650,000.00,25 the Paircargo Consortium
had to show to the satisfaction of the PBAC that it
had the ability to provide the minimum equity for
the
project
in
the
amount
of
at
least P2,755,095,000.00.

Paircargo's Audited Financial Statements as of

1993 and 1994 indicated that it had a net worth
of
P2,783,592.00
and
P3,123,515.00
respectively.26 PAGS' Audited Financial Statements
as of 1995 indicate that it has approximately
P26,735,700.00 to invest as its equity for the
project.27 Security
Bank's
Audited
Financial
Statements as of 1995 show that it has a net
worth equivalent to its capital funds in the
amount of P3,523,504,377.00.28
We agree with public respondents that with
respect to Security Bank, the entire amount of
its net worth could not be invested in a single
undertaking or enterprise, whether allied or nonallied in accordance with the provisions of R.A.
No. 337, as amended or the General Banking Act:
Sec. 21-B. The provisions in this or in any
other Act to the contrary notwithstanding,
the Monetary Board, whenever it shall
deem appropriate and necessary to further
national development objectives or support
national priority projects, may authorize
a commercial bank, a bank authorized
to
provide
commercial
banking
services, as well as a governmentowned
and
controlled
bank,
to
operate
under
an
expanded
commercial banking authority and by
virtue thereof exercise, in addition to
powers authorized for commercial
banks, the powers of an Investment
House as provided in Presidential
Decree No. 129, invest in the equity of
a non-allied undertaking, or own a
majority or all of the equity in a financial
intermediary other than a commercial bank
or
a
bank
authorized
to
provide
commercial banking services:Provided,
That (a) the total investment in equities
shall not exceed fifty percent (50%) of the
net worth of the bank; (b) the equity
investment in any one enterprise
whether allied or non-allied shall not
exceed fifteen percent (15%) of the
net worth of the bank; (c) the equity
investment of the bank, or of its wholly or
majority-owned subsidiary, in a single nonallied undertaking shall not exceed thirtyfive percent (35%) of the total equity in the
enterprise nor shall it exceed thirty-five
percent (35%) of the voting stock in that
enterprise; and (d) the equity investment
in other banks shall be deducted from the
investing bank's net worth for purposes of
41

computing the prescribed ratio of net

worth to risk assets.
xxx

xxx

xxx

Further, the 1993 Manual of Regulations for

Banks provides:
SECTION X383. Other Limitations and
Restrictions. The following limitations
and restrictions shall also apply regarding
equity investments of banks.
a. In any single enterprise. The equity
investments of banks in any single
enterprise shall not exceed at any time
fifteen percent (15%) of the net worth of
the investing bank as defined in Sec. X106
and Subsec. X121.5.
Thus, the maximum amount that Security Bank
could validly invest in the Paircargo Consortium is
only P528,525,656.55, representing 15% of its
entire net worth. The total net worth therefore of
the Paircargo Consortium, after considering
the maximum amounts that may be validly
invested
by
each
of
its
members
isP558,384,871.55 or only 6.08% of the
project cost,29 an amount substantially less than
the prescribed minimum equity investment
required for the project in the amount of
P2,755,095,000.00 or 30% of the project cost.
The purpose of pre-qualification in any public
bidding is to determine, at the earliest
opportunity, the ability of the bidder to undertake
the project. Thus, with respect to the bidder's
financial capacity at the pre-qualification stage,
the law requires the government agency to
examine and determine the ability of the bidder
to fund the entire cost of the project by
considering the maximum amounts that
each bidder may invest in the project at the
time of pre-qualification.
The PBAC has determined that any prospective
bidder for the construction, operation and
maintenance of the NAIA IPT III project should
prove that it has the ability to provide equity in
the minimum amount of 30% of the project cost,
in accordance with the 70:30 debt-to-equity ratio
prescribed in the Bid Documents. Thus, in the
case of Paircargo Consortium, the PBAC should
determine the maximum amounts that each
member of the consortium may commit for the
construction, operation and maintenance of the

NAIA IPT III project at the time of prequalification. With respect to Security Bank,
the maximum amount which may be invested
by it would only be 15% of its net worth in view of
the restrictions imposed by the General Banking
Act. Disregarding the investment ceilings
provided by applicable law would not result in a
proper evaluation of whether or not a bidder is
pre-qualified to undertake the project as for all
intents and purposes, such ceiling or legal
restriction
determines
thetrue
maximum
amount which a bidder may invest in the project.
Further, the determination of whether or not a
bidder is pre-qualified to undertake the project
requires an evaluation of the financial capacity of
the said bidder at the time the bid is
submitted based on the required documents
presented by the bidder. The PBAC should not be
allowed to speculate on the future financial
abilityof the bidder to undertake the project on
the basis of documents submitted. This would
open doors to abuse and defeat the very purpose
of a public bidding. This is especially true in the
case at bar which involves the investment of
billions of pesos by the project proponent. The
relevant government authority is duty-bound to
ensure that the awardee of the contract
possesses the minimum required financial
capability to complete the project. To allow the
PBAC to estimate the bidder's future financial
capability would not secure the viability and
integrity of the project. A restrictive and
conservative application of the rules and
procedures of public bidding is necessary not only
to protect the impartiality and regularity of the
proceedings but also to ensure the financial and
technical reliability of the project. It has been
held that:
The basic rule in public bidding is that bids
should be evaluated based on the required
documents submitted before and not after
the opening of bids. Otherwise, the
foundation of a fair and competitive public
bidding
would
be
defeated. Strict
observance of the rules, regulations,
and guidelines of the bidding process
is the only safeguard to a fair, honest
and competitive public bidding.30
Thus, if the maximum amount of equity that a
bidder may invest in the project at the time the
bids are submittedfalls short of the minimum
amounts required to be put up by the bidder, said
bidder
should
be
properly
disqualified.
Considering that at the pre-qualification stage,
42

the maximum amounts which the Paircargo

Consortium may invest in the project fell short of
the minimum amounts prescribed by the PBAC,
we hold that Paircargo Consortium was not a
qualified bidder. Thus the award of the contract
by the PBAC to the Paircargo Consortium, a
disqualified bidder, is null and void.
While it would be proper at this juncture to end
the resolution of the instant controversy, as the
legal effects of the disqualification of respondent
PIATCO's predecessor would come into play and
necessarily result in the nullity of all the
subsequent contracts entered by it in pursuance
of the project, the Court feels that it is necessary
to discuss in full the pressing issues of the
present controversy for a complete resolution
thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that
the 1997 Concession Agreement is invalid as it
contains provisions that substantially depart from
the draft Concession Agreement included in the
Bid Documents. They maintain that a substantial
departure from the draft Concession Agreement
is a violation of public policy and renders the
1997 Concession Agreement null and void.
PIATCO maintains, however, that the Concession
Agreement attached to the Bid Documents is
intended to be adraft, i.e., subject to change,
alteration or modification, and that this intention
was clear to all participants, including AEDC, and
DOTC/MIAA. It argued further that said intention
is expressed in Part C (6) of Bid Bulletin No. 3
issued by the PBAC which states:
6. Amendments to the Draft Concessions
Agreement
Amendments to the Draft Concessions
Agreement shall be issued from time to
time. Said amendments shall only cover
items that would not materially affect the
preparation of the proponent's proposal.
By its very nature, public bidding aims to protect
the public interest by giving the public the best
possible advantages through open competition.
Thus:

Competition must be legitimate, fair and

honest. In the field of government contract
law, competition requires, not only
`bidding upon a common standard, a
common basis, upon the same thing, the
same
subject
matter,
the
same
undertaking,' but
also
that
it
be
legitimate, fair and honest; and not
designed to injure or defraud the
government.31
An essential element of a publicly bidded contract
is that all bidders must be on equal footing. Not
simply in terms of application of the procedural
rules and regulations imposed by the relevant
government agency, but more importantly, on
the contract bidded upon. Each bidder must be
able to bid on the same thing. The rationale is
obvious. If the winning bidder is allowed to later
include or modify certain provisions in the
contract awarded such that the contract is
altered in any material respect, then the essence
of fair competition in the public bidding is
destroyed. A public bidding would indeed be a
farce if after the contract is awarded, the winning
bidder may modify the contract and include
provisions which are favorable to it that were not
previously made available to the other bidders.
Thus:
It is inherent in public biddings that there
shall be a fair competition among the
bidders. The specifications in such biddings
provide the common ground or basis for
the bidders. The specifications should,
accordingly,
operate
equally
or
indiscriminately upon all bidders. 32
The same rule was restated by Chief Justice
Stuart of the Supreme Court of Minnesota:
The law is well settled that where, as in
this case, municipal authorities can only let
a contract for public work to the lowest
responsible bidder, the proposals and
specifications therefore must be so framed
as to permit free and full competition. Nor
can they enter into a contract with the
best bidder containing substantial
provisions beneficial to him, not
included or contemplated in the terms
and specifications upon which the
bids were invited.33
In fact, in the PBAC Bid Bulletin No. 3 cited by
PIATCO to support its argument that the draft
concession agreement is subject to amendment,
43

the pertinent portion of which was quoted above,

the
PBAC
also
clarified
that "[s]aid
amendments shall only cover items that
would not materially affect the preparation
of the proponent's proposal."
While we concede that a winning bidder is not
precluded from modifying or amending certain
provisions of the contract bidded upon, such
changes must not constitute substantial or
material amendments that would alter the
basic parameters of the contract and would
constitute a denial to the other bidders of
the opportunity to bid on the same terms.
Hence, the determination of whether or not a
modification or amendment of a contract bidded
out constitutes a substantial amendment rests on
whether the contract, when taken as a whole,
would contain substantially different terms and
conditions that would have the effect of altering
the
technical
and/or
financial
proposals
previously submitted by other bidders. The
alterations and modifications in the contract
executed between the government and the
winning bidder must be such as to render such
executed contract to be an entirely different
contract from the one that was bidded
upon.
In the case of Caltex (Philippines), Inc. v.
Delgado Brothers, Inc.,34 this Court quoted
with approval the ruling of the trial court that an
amendment to a contract awarded through public
bidding, when such subsequent amendment was
made without a new public bidding, is null and
void:
The Court agrees with the contention of
counsel for the plaintiffs that the due
execution of a contract after public bidding
is a limitation upon the right of the
contracting parties to alter or amend it
without another public bidding, for
otherwise what would a public bidding
be good for if after the execution of a
contract after public bidding, the
contracting parties may alter or
amend the contract, or even cancel it,
at their will? Public biddings are held for
the protection of the public, and to give the
public the best possible advantages by
means of open competition between the
bidders. He who bids or offers the best
terms is awarded the contract subject of
the bid, and it is obvious that such
protection and best possible advantages to
the public will disappear if the parties to a

contract executed after public bidding may

alter or amend it without another previous
public bidding.35
Hence, the question that comes to fore is this: is
the 1997 Concession Agreement the same
agreement that was offered for public bidding,
i.e., the draft Concession Agreement attached to
the Bid Documents? A close comparison of the
draft Concession Agreement attached to the Bid
Documents and the 1997 Concession Agreement
reveals that the documents differ in at least two
material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by
PIATCO under the draft Concession Agreement
and the 1997 Concession Agreement may be
classified into three distinct categories: (1) fees
which are subject to periodic adjustment of once
every two years in accordance with a prescribed
parametric formula and adjustments are made
effective only upon written approval by MIAA; (2)
fees other than those included in the first
category which maybe adjusted by PIATCO
whenever it deems necessary without need for
consent of DOTC/MIAA; and (3) new fees and
charges that may be imposed by PIATCO which
have not been previously imposed or collected at
the Ninoy Aquino International Airport Passenger
Terminal I, pursuant to Administrative Order No.
1, Series of 1993, as amended. The glaring
distinctions between the draft Concession
Agreement and the 1997 Concession Agreement
lie in the types of fees included in each category
and the extent of the supervision and regulation
which MIAA is allowed to exercise in relation
thereto.
For fees under the first category, i.e., those
which are subject to periodic adjustment in
accordance with a prescribed parametric formula
and effective only upon written approval by
MIAA, the
draft
Concession
Agreement includes the following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
44

(3) groundhandling fees;

(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees
which are subject to adjustment and effective
upon MIAA approval are classified as "Public
Utility Revenues" and include:37
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees
that are subject to MIAA approval is best
appreciated in relation to fees included in
the second category identified above. Under
the 1997 Concession Agreement, fees which
PIATCO may adjust whenever it deems necessary
without need for consent of DOTC/MIAA are "NonPublic Utility Revenues" and is defined as "all
other income not classified as Public Utility
Revenues derived from operations of the Terminal
and the Terminal Complex."38 Thus, under the
1997 Concession Agreement, ground handling
fees, rentals from airline offices and porterage
fees are no longer subject to MIAA regulation.
Further, under Section 6.03 of the draft
Concession Agreement, MIAA reserves the
right to regulate (1) lobby and vehicular parking
fees and (2) other new fees and charges that may
be imposed by PIATCO. Such regulation may be
made by periodic adjustment and is effective only
upon written approval of MIAA. The full text of
said provision is quoted below:
Section 6.03. Periodic Adjustment in Fees
and Charges. Adjustments in the aircraft
parking
fees,
aircraft
tacking
fees,
groundhandling fees, rentals and airline
offices,
check-in-counter
rentals
and
porterage fees shall be allowed only once
every two years and in accordance with
the Parametric Formula attached hereto as
Annex F. Provided that adjustments shall
be made effective only after the written
express approval of the MIAA. Provided,

further, that such approval of the MIAA,

shall be contingent only on the conformity
of the adjustments with the above said
parametric formula. The first adjustment
shall be made prior to the In-Service Date
of the Terminal.
The MIAA reserves the right to
regulate under the foregoing terms
and
conditions
the
lobby
and
vehicular parking fees and other new
fees and charges as contemplated in
paragraph 2 of Section 6.01 if in its
judgment the users of the airport
shall be deprived of a free option for
the services they cover.39
On the other hand, the equivalent provision under
the 1997 Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees
and Charges.
xxx

xxx

xxx

(c) Concessionaire shall at all times be

judicious in fixing fees and charges
constituting Non-Public Utility Revenues in
order to ensure that End Users are not
unreasonably deprived of services. While
the vehicular parking fee, porterage
fee and greeter/well wisher fee
constitute Non-Public Utility Revenues
of Concessionaire, GRP may intervene
and require Concessionaire to explain
and justify the fee it may set from
time to time, if in the reasonable opinion
of GRP the said fees have become
exorbitant resulting in the unreasonable
deprivation of End Users of such services. 40
Thus,
under
the 1997
Concession
Agreement, with respect to (1) vehicular parking
fee, (2) porterage fee and (3) greeter/well wisher
fee, all that MIAA can do is to require PIATCO
to explain and justify the fees set by PIATCO. In
the draft Concession Agreement, vehicular
parking fee is subject to MIAA regulation and
approval under the second paragraph of Section
6.03 thereof while porterage fee is covered by
the first paragraph of the same provision. There
is an obvious relaxation of the extent of control
and regulation by MIAA with respect to the
particular fees that may be charged by PIATCO.

45

Moreover, with respect to the third category of

fees that may be imposed and collected by
PIATCO, i.e., new fees and charges that may be
imposed by PIATCO which have not been
previously imposed or collected at the Ninoy
Aquino International Airport Passenger Terminal I,
under Section 6.03 of the draft Concession
Agreement MIAA has reserved the right to
regulate the same under the same conditions
that MIAA may regulate fees under the first
category, i.e., periodic adjustment of once every
two years in accordance with a prescribed
parametric formula and effective only upon
written approval by MIAA. However, under
the 1997 Concession Agreement, adjustment
of fees under the third category is not subject to
MIAA regulation.
With respect to terminal fees that may be
charged by PIATCO,41 as shown earlier, this was
included within the category of "Public Utility
Revenues"
under
the
1997
Concession
Agreement. This classification is significant
because
under
the 1997
Concession
Agreement, "Public Utility Revenues" are subject
to an "Interim Adjustment" of fees upon the
occurrence of certain extraordinary events
specified in the agreement. 42 However, under
thedraft Concession Agreement, terminal fees
are not included in the types of fees that may be
subject to "Interim Adjustment."43
Finally,
under
the 1997
Concession
Agreement, "Public Utility Revenues," except
terminal
fees,
are
denominated
in
US
Dollars44 while payments to the Government are
in Philippine Pesos. In the draft Concession
Agreement,no such stipulation was included. By
stipulating that "Public Utility Revenues" will be
paid to PIATCO in US Dollars while payments by
PIATCO to the Government are in Philippine
currency under the 1997 Concession Agreement,
PIATCO is able to enjoy the benefits of
depreciations of the Philippine Peso, while being
effectively insulated from the detrimental effects
of exchange rate fluctuations.
When taken as a whole, the changes under the
1997 Concession Agreement with respect to
reduction in the types of fees that are subject to
MIAA regulation and the relaxation of such
regulation with respect to other fees are
significant
amendments
that
substantially
distinguish the draft Concession Agreement from
the 1997 Concession Agreement. The 1997
Concession Agreement, in this respect,
clearly gives PIATCO more favorable terms

than what was available to other bidders at

the time the contract was bidded out. It is
not very difficult to see that the changes in the
1997 Concession Agreement translate to direct
and concrete financial advantages for
PIATCO which were not available at the time the
contract was offered for bidding. It cannot be
denied that under the 1997 Concession
Agreement only "Public Utility Revenues" are
subject to MIAA regulation. Adjustments of all
other fees imposed and collected by PIATCO are
entirely within its control. Moreover, with respect
to terminal fees, under the 1997 Concession
Agreement, the same is further subject to
"Interim Adjustments" not previously stipulated in
the draft Concession Agreement. Finally, the
change in the currency stipulated for "Public
Utility Revenues" under the 1997 Concession
Agreement, except terminal fees, gives PIATCO an
added benefit which was not available at the time
of bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latter's
default thereof
Under
the draft
Concession
Agreement, default by PIATCO of any of its
obligations to creditors who have provided,
loaned or advanced funds for the NAIA IPT III
project does not result in the assumption by the
Government of these liabilities. In fact, nowhere
in the said contract does default of PIATCO's loans
figure in the agreement. Such default does not
directly result in any concomitant right or
obligation in favor of the Government.
However,
the 1997
Agreement provides:

Concession

Section 4.04 Assignment.

xxx

xxx

xxx

(b) In the event Concessionaire should

default in the payment of an Attendant
Liability, and the default has resulted in the
acceleration of the payment due date of
the Attendant Liability prior to its stated
date of maturity, the Unpaid Creditors and
Concessionaire shall immediately inform
GRP in writing of such default. GRP shall,
46

within one hundred eighty (180) Days from

receipt of the joint written notice of the
Unpaid Creditors and Concessionaire,
either (i) take over the Development
Facility
and
assume
the
Attendant
Liabilities, or (ii) allow the Unpaid
Creditors, if qualified, to be substituted as
concessionaire and operator of the
Development Facility in accordance with
the terms and conditions hereof, or
designate a qualified operator acceptable
to GRP to operate the Development
Facility, likewise under the terms and
conditions of this Agreement; Provided that
if at the end of the 180-day period GRP
shall not have served the Unpaid Creditors
and Concessionaire written notice of its
choice, GRP shall be deemed to have
elected to take over the Development
Facility with the concomitant assumption of
Attendant Liabilities.
(c) If GRP should, by written notice, allow
the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and
organize a concession company qualified
to take over the operation of the
Development Facility. If the concession
company should elect to designate an
operator for the Development Facility, the
concession company shall in good faith
identify and designate a qualified operator
acceptable to GRP within one hundred
eighty (180) days from receipt of GRP's
written notice. If the concession company,
acting in good faith and with due diligence,
is unable to designate a qualified operator
within the aforesaid period, then GRP shall
at the end of the 180-day period take over
the Development Facility and assume
Attendant Liabilities.
The term "Attendant Liabilities" under the 1997
Concession Agreement is defined as:
Attendant Liabilities refer to all amounts
recorded
and
from
time
to
time
outstanding
in
the
books
of
the
Concessionaire as owing to Unpaid
Creditors who have provided, loaned
or advanced funds actually used for
the
Project, including
all
interests,
penalties,
associated
fees,
charges,
surcharges, indemnities, reimbursements
and other related expenses, and further
including amounts owed by Concessionaire

to its suppliers,
contractors.

contractors

and

sub-

Under the above quoted portions of Section 4.04

in relation to the definition of "Attendant
Liabilities," default by PIATCO of its loans
used to finance the NAIA IPT III project
triggers the occurrence of certain events
that leads to the assumption by the
Government of the liability for the loans.
Only in one instance may the Government escape
the assumption of PIATCO's liabilities, i.e., when
the Government so elects and allows a qualified
operator
to
take
over
as
Concessionaire. However, this circumstance is
dependent on the existence and availability
of a qualified operator who is willing to take
over the rights and obligations of PIATCO
under the contract, a circumstance that is
not entirely within the control of the
Government.
Without going into the validity of this provision at
this juncture, suffice it to state that Section 4.04
of the 1997 Concession Agreement may be
considered a form of security for the loans PIATCO
has obtained to finance the project, an option
that was not made available in the draft
Concession Agreement. Section 4.04 is an
important amendment to the 1997 Concession
Agreement because it grants PIATCO a financial
advantage or benefit which was not
previously made available during the
bidding process. This financial advantage is a
significant modification that translates to better
terms and conditions for PIATCO.
PIATCO, however, argues that the parties to the
bidding procedure acknowledge that the draft
Concession Agreement is subject to amendment
because the Bid Documents permit financing or
borrowing. They claim that it was the lenders who
proposed the amendments to the draft
Concession Agreement which resulted in the
1997 Concession Agreement.
We agree that it is not inconsistent with the
rationale and purpose of the BOT Law to allow the
project proponent or the winning bidder to obtain
financing for the project, especially in this case
which involves the construction, operation and
maintenance of the NAIA IPT III. Expectedly,
compliance by the project proponent of its
undertakings therein would involve a substantial
amount of investment. It is therefore inevitable
for the awardee of the contract to seek alternate
sources of funds to support the project. Be that as
47

it may, this Court maintains that amendments to

the contract bidded upon should always conform
to the general policy on public bidding if such
procedure is to be faithful to its real nature and
purpose. By its very nature and characteristic,
competitive public bidding aims to protect the
public interest by giving the public the best
possible
advantages
through
open
competition.45 It has been held that the three
principles in public bidding are (1) the offer to the
public; (2) opportunity for competition; and (3) a
basis for the exact comparison of bids. A
regulation of the matter which excludes any of
these factors destroys the distinctive character of
the system and thwarts the purpose of its
adoption.46 These are the basic parameters which
every awardee of a contract bidded out must
conform to, requirements of financing and
borrowing notwithstanding. Thus, upon a
concrete showing that, as in this case, the
contract signed by the government and the
contract-awardee is an entirely different contract
from the contract bidded, courts should not
hesitate to strike down said contract in its
entirety for violation of public policy on public
bidding. A strict adherence on the principles,
rules and regulations on public bidding must be
sustained if only to preserve the integrity and the
faith of the general public on the procedure.
Public bidding is a standard practice for procuring
government contracts for public service and for
furnishing supplies and other materials. It aims to
secure for the government the lowest possible
price under the most favorable terms and
conditions, to curtail favoritism in the award of
government contracts and avoid suspicion of
anomalies and it places all bidders in equal
footing.47 Any
government
action
which
permits any substantial variance between
the conditions under which the bids are
invited and the contract executed after the
award thereof is a grave abuse of discretion
amounting to lack or excess of jurisdiction
which warrants proper judicial action.
In view of the above discussion, the fact that the
foregoing substantial amendments were made on
the 1997 Concession Agreement renders the
same null and void for being contrary to public
policy. These amendments convert the 1997
Concession Agreement to an entirely different
agreement from the contract bidded out or the
draft Concession Agreement. It is not difficult to
see that the amendments on (1) the types of fees
or charges that are subject to MIAA regulation or
control and the extent thereof and (2) the

assumption by the Government, under certain

conditions, of the liabilities of PIATCO directly
translates concrete financial advantages to
PIATCO that were previously not available
during
the
bidding
process.
These
amendments cannot be taken as merely
supplements to or implementing provisions of
those already existing in the draft Concession
Agreement. The amendments discussed above
present new terms and conditions which provide
financial benefit to PIATCO which may have
altered the technical and financial parameters of
other bidders had they known that such terms
were available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to
Article 1.06, of the 1997 Concession Agreement
provides:
Section 4.04 Assignment
xxx

xxx

xxx

(b)
In
the
event
Concessionaire
should default in the payment of an
Attendant Liability, and the default
resulted in the acceleration of the payment
due date of the Attendant Liability prior to
its stated date of maturity, the Unpaid
Creditors
and
Concessionaire
shall
immediately inform GRP in writing of such
default. GRP shall within one hundred
eighty (180) days from receipt of the joint
written notice of the Unpaid Creditors and
Concessionaire, either (i) take over the
Development Facility and assume the
Attendant Liabilities, or (ii) allow the
Unpaid Creditors, if qualified to be
substituted as concessionaire and operator
of the Development facility in accordance
with the terms and conditions hereof, or
designate a qualified operator acceptable
to GRP to operate the Development
Facility, likewise under the terms and
conditions of this Agreement; Provided,
that if at the end of the 180-day period
GRP shall not have served the Unpaid
Creditors and Concessionaire written notice
of its choice, GRP shall be deemed to
have elected to take over the
Development
Facility
with
the
concomitant assumption of Attendant
Liabilities.
48

(c) If GRP, by written notice, allow the

Unpaid Creditors to be substituted as
concessionaire, the latter shall form and
organize a concession company qualified
to takeover the operation
of
the
Development Facility. If the concession
company should elect to designate an
operator for the Development Facility, the
concession company shall in good faith
identify and designate a qualified operator
acceptable to GRP within one hundred
eighty (180) days from receipt of GRP's
written notice. If the concession company,
acting in good faith and with due diligence,
is unable to designate a qualified operator
within
the
aforesaid
period, then
GRP shall at the end of the 180-day
period take over the Development
Facility
and
assume
Attendant
Liabilities.
.
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts
recorded and from time to time
outstanding in the books of the
Concessionaire as owing to Unpaid
Creditors who have provided, loaned or
advanced funds actually used for the
Project, including all interests, penalties,
associated fees, charges, surcharges,
indemnities, reimbursements and other
related expenses, and further including
amounts owed by Concessionaire to its
suppliers,
contractors
and
subcontractors.48
It is clear from the above-quoted provisions
that Government, in the event that PIATCO
defaults in its loan obligations, is obligated
to pay "all amounts recorded and from time to
time outstanding from the books" of PIATCO
which the latter owes to its creditors. 49 These
amounts
include
"all
interests,
penalties,
associated
fees,
charges,
surcharges,
indemnities, reimbursements and other related
expenses."50 This obligation of the Government to
pay PIATCO's creditors upon PIATCO's default
would arise if the Government opts to take over
NAIA IPT III. It should be noted, however, that
even if the Government chooses the second
option, which is to allow PIATCO's unpaid creditors
operate NAIA IPT III, the Government is still at a
risk of being liable to PIATCO's creditors should
the latter be unable to designate a qualified

operator within the prescribed period.51 In

effect,whatever option the Government
chooses to take in the event of PIATCO's
failure to fulfill its loan obligations, the
Government is still at a risk of assuming
PIATCO's outstanding loans. This is due to the
fact that the Government would only be free from
assuming PIATCO's debts if the unpaid creditors
would be able to designate a qualified operator
within the period provided for in the contract.
Thus, the
Government's
assumption
of
liability is virtually out of its control. The
Government under the circumstances provided
for in the 1997 Concession Agreement is at the
mercy of the existence, availability and
willingness of a qualified operator. The above
contractual
provisions constitute a direct
government guarantee which is prohibited by law.
One of the main impetus for the enactment of the
BOT Law is the lack of government funds to
construct the infrastructure and development
projects necessary for economic growth and
development. This is why private sector resources
are being tapped in order to finance these
projects. The BOT law allows the private sector to
participate, and is in fact encouraged to do so by
way of incentives, such as minimizing the
unstable flow of returns,52 provided that the
government would not have to unnecessarily
expend scarcely available funds for the project
itself. As such, direct guarantee, subsidy and
equity by the government in these projects are
strictly prohibited.53 This is but logical for if
the government would in the end still be at
a risk of paying the debts incurred by the
private entity in the BOT projects, then the
purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct
guarantee as follows:
(n) Direct government guarantee An
agreement whereby the government or
any of its agencies or local government
units
assume
responsibility
for
the repayment
of
debt
directly
incurred by the project proponent in
implementing the project in case of a
loan default.
Clearly by providing that the Government
"assumes" the attendant liabilities, which consists
of PIATCO's unpaid debts, the 1997 Concession
Agreement provided for a direct government
guarantee for the debts incurred by PIATCO in the
implementation of the NAIA IPT III project. It is of
49

no moment that the relevant sections are

subsumed under the title of "assignment". The
provisions providing for direct government
guarantee which is prohibited by law is clear from
the terms thereof.
The fact that the ARCA superseded the 1997
Concession Agreement did not cure this fatal
defect. Article IV, Section 4.04(c), in relation to
Article I, Section 1.06, of the ARCA provides:
Section 4.04 Security
xxx

xxx

xxx

(c) GRP
agrees with
Concessionaire
(PIATCO) that it shall negotiate in good
faith and enter into direct agreement
with the Senior Lenders, or with an
agent of such Senior Lenders (which
agreement shall be subject to the approval
of the Bangko Sentral ng Pilipinas), in such
form as may be reasonably acceptable to
both GRP and Senior Lenders, with regard,
inter alia, to the following parameters:
xxx

xxx

xxx

(iv) If the Concessionaire [PIATCO] is in

default under a payment obligation
owed to the Senior Lenders, and as a
result thereof the Senior Lenders have
become entitled to accelerate the Senior
Loans, the Senior Lenders shall have the
right to notify GRP of the same, and
without prejudice to any other rights of the
Senior Lenders or any Senior Lenders'
agent may have (including without
limitation under security interests granted
in favor of the Senior Lenders), to either in
good faith identify and designate a
nominee which is qualified under subclause (viii)(y) below to operate the
Development Facility [NAIA Terminal 3] or
transfer the Concessionaire's [PIATCO]
rights
and
obligations
under
this
Agreement to a transferee which is
qualified under sub-clause (viii) below;
xxx

xxx

xxx

(vi) if the Senior Lenders, acting in good

faith and using reasonable efforts, are
unable to designate a nominee or effect a
transfer
in
terms
and
conditions
satisfactory to the Senior Lenders within

one hundred eighty (180) days after giving

GRP notice as referred to respectively in
(iv) or (v) above, then GRP and the Senior
Lenders shall endeavor in good faith to
enter into any other arrangement relating
to the Development Facility [NAIA Terminal
3] (other than a turnover of the
Development Facility [NAIA Terminal 3] to
GRP) within the following one hundred
eighty
(180)
days. If
no
agreement relating to the Development
Facility [NAIA Terminal 3] is arrived at by
GRP and the Senior Lenders within the said
180-day period, then at the end thereof
the Development
Facility
[NAIA
Terminal 3] shall be transferred by the
Concessionaire [PIATCO] to GRP or its
designee and GRP shall make a
termination
payment
to
Concessionaire [PIATCO] equal to the
Appraised
Value
(as
hereinafter
defined) of the Development Facility
[NAIA Terminal 3] or the sum of the
Attendant
Liabilities,
if
greater.
Notwithstanding Section 8.01(c) hereof,
this
Agreement
shall
be
deemed
terminated upon the transfer of the
Development Facility [NAIA Terminal 3] to
GRP pursuant hereto;
xxx

xxx

xxx

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all
amounts in each case supported by
verifiable evidence from time to timeowed
or which may become owing by
Concessionaire [PIATCO] to Senior
Lenders or any other persons or
entities who have provided, loaned, or
advanced funds or provided financial
facilities
to
Concessionaire
[PIATCO] for the Project [NAIA Terminal
3], including, without limitation, all
principal, interest, associated fees,
charges, reimbursements, and other
related expenses (including the fees,
charges and expenses of any agents or
trustees of such persons or entities),
whether
payable
at
maturity,
by
acceleration or otherwise, and further
including amounts owed by Concessionaire
[PIATCO] to its professional consultants and
advisers, suppliers, contractors and subcontractors.54
50

It is clear from the foregoing contractual

provisions that in the event that PIATCO fails to
fulfill its loan obligations to its Senior Lenders, the
Government is obligated to directly negotiate and
enter into an agreement relating to NAIA IPT III
with the Senior Lenders, should the latter fail to
appoint a qualified nominee or transferee who
will take the place of PIATCO. If the Senior
Lenders and the Government are unable to enter
into an agreement after the prescribed period,
the Government must then pay PIATCO, upon
transfer of NAIA IPT III to the Government,
termination payment equal to the appraised
value of the project or the value of the
attendant liabilities whichever is greater.
Attendant liabilities as defined in the ARCA
includes all amounts owed or thereafter may be
owed by PIATCO not only to the Senior Lenders
with whom PIATCO has defaulted in its loan
obligations but to all other persons who may have
loaned, advanced funds or provided any other
type of financial facilities to PIATCO for NAIA IPT
III. The amount of PIATCO's debt that the
Government would have to pay as a result of
PIATCO's default in its loan obligations -- in case
no qualified nominee or transferee is appointed
by the Senior Lenders and no other agreement
relating to NAIA IPT III has been reached between
the Government and the Senior Lenders -includes, but is not limited to, "all principal,
interest,
associated
fees,
charges,
reimbursements, and other related expenses . . .
whether payable at maturity, by acceleration or
otherwise."55
It is clear from the foregoing that the ARCA
provides for a direct guarantee by the
government to pay PIATCO's loans not only
to its Senior Lenders but all other entities
who provided PIATCO funds or services
upon PIATCO's default in its loan obligation
with its Senior Lenders. The fact that the
Government's obligation to pay PIATCO's lenders
for the latter's obligation would only arise after
the Senior Lenders fail to appoint a qualified
nominee or transferee does not detract from the
fact that, should the conditions as stated in the
contract occur, the ARCA still obligates the
Government to pay any and all amounts owed by
PIATCO to its lenders in connection with NAIA IPT
III. Worse, the conditions that would make the
Government liable for PIATCO's debts is triggered
by PIATCO's own default of its loan obligations to
its Senior Lenders to which loan contracts the
Government was never a party to. The
Government was not even given an option as to
what course of action it should take in case

PIATCO defaulted in the payment of its senior

loans. The Government, upon PIATCO's default,
would be merely notified by the Senior Lenders of
the same and it is the Senior Lenders who are
authorized to appoint a qualified nominee or
transferee. Should the Senior Lenders fail to
make such an appointment, the Government is
then automatically obligated to "directly deal and
negotiate" with the Senior Lenders regarding
NAIA IPT III. The only way the Government would
not be liable for PIATCO's debt is for a qualified
nominee or transferee to be appointed in place of
PIATCO to continue the construction, operation
and maintenance of NAIA IPT III. This "precondition", however, will not take the contract out
of the ambit of a direct guarantee by the
government as the existence, availability and
willingness of a qualified nominee or transferee is
totally out of the government's control. As
such the Government is virtually at the
mercy of PIATCO (that it would not default on
its loan obligations to its Senior Lenders), the
Senior Lenders (that they would appoint a
qualified nominee or transferee or agree to some
other arrangement with the Government) and the
existence of a qualified nominee or transferee
who is able and willing to take the place of
PIATCO in NAIA IPT III.
The
proscription
against
government
guarantee in any form is one of the policy
considerations behind the BOT Law. Clearly,
in the present case, the ARCA obligates the
Government to pay for all loans, advances and
obligations arising out of financial facilities
extended to PIATCO for the implementation of the
NAIA IPT III project should PIATCO default in its
loan obligations to its Senior Lenders and the
latter fails to appoint a qualified nominee or
transferee. This in effect would make the
Government liable for PIATCO's loans should the
conditions as set forth in the ARCA arise. This is a
form of direct government guarantee.
The BOT Law and its implementing rules provide
that in order for an unsolicited proposal for a BOT
project may be accepted, the following conditions
must first be met: (1) the project involves a new
concept in technology and/or is not part of the list
of priority projects, (2) no direct government
guarantee,
subsidy
or
equity
is
required, and (3) the government agency or
local government unit has invited by publication
other interested parties to a public bidding and
conducted the same.56 The failure to meet any of
the above conditions will result in the denial of
the proposal. It is further provided that the
51

presence of direct government guarantee,

subsidy or equity will "necessarily disqualify a
proposal from being treated and accepted as an
unsolicited proposal."57 The BOT Law clearly and
strictly prohibits direct government guarantee,
subsidy and equity in unsolicited proposals that
the mere inclusion of a provision to that effect is
fatal and is sufficient to deny the proposal. It
stands to reason therefore that if a proposal can
be denied by reason of the existence of direct
government guarantee, then its inclusion in the
contract executed after the said proposal has
been accepted is likewise sufficient to invalidate
the contract itself. A prohibited provision, the
inclusion of which would result in the denial of a
proposal cannot, and should not, be allowed to
later on be inserted in the contract resulting from
the said proposal. The basic rules of justice and
fair play alone militate against such an
occurrence and must not, therefore, be
countenanced particularly in this instance where
the government is exposed to the risk of
shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to
the legal maxim that those that cannot be done
directly cannot be done indirectly. 58 To declare
the PIATCO contracts valid despite the clear
statutory prohibition against a direct
government guarantee would not only make
a mockery of what the BOT Law seeks to
prevent -- which is to expose the
government to the risk of incurring a
monetary obligation resulting from a
contract of loan between the project
proponent and its lenders and to which the
Government is not a party to -- but would
also render the BOT Law useless for what it
seeks to achieve - to make use of the
resources of the private sector in the
"financing, operation and maintenance of
infrastructure
and
development
projects"59 which are necessary for national
growth and development but which the
government, unfortunately, could ill-afford
to finance at this point in time.
IV
Temporary takeover of business affected
with public interest
Article XII, Section 17 of the 1987 Constitution
provides:
Section 17. In times of national emergency,
when the public interest so requires, the

State may, during the emergency and

under reasonable terms prescribed by it,
temporarily take over or direct the
operation of any privately owned public
utility or business affected with public
interest.
The above provision pertains to the right of the
State in times of national emergency, and in the
exercise of its police power, to temporarily take
over the operation of any business affected with
public interest. In the 1986 Constitutional
Commission, the term "national emergency" was
defined to include threat from external
aggression, calamities or national disasters, but
not strikes "unless it is of such proportion that
would
paralyze
government
service."60 The
duration of the emergency itself is the
determining factor as to how long the temporary
takeover by the government would last. 61 The
temporary takeover by the government extends
only to the operation of the business and not to
the ownership thereof. As such the government
is not required to compensate the private
entity-owner of the said business as there
is
no
transfer
of
ownership, whether
permanent or temporary. The private entityowner affected by the temporary takeover
cannot, likewise, claim just compensation for the
use of the said business and its properties as the
temporary takeover by the government is in
exercise of its police power and not of its power
of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession
Agreement provides:
Section 5.10 Temporary
operations by GRP.

Take-over

of

.
(c) In the event the development Facility or
any part thereof and/or the operations of
Concessionaire or any part thereof,
become the subject matter of or be
included in any notice, notification, or
declaration concerning or relating to
acquisition, seizure or appropriation by
GRP in times of war or national emergency,
GRP
shall,
by
written
notice
to
Concessionaire, immediately take over the
operations of the Terminal and/or the
Terminal Complex. During such take over
by GRP, the Concession Period shall be
suspended;
provided,
that
upon
termination of war, hostilities or national
52

emergency, the operations shall be

returned to Concessionaire, at which time,
the Concession period shall commence to
run again. Concessionaire shall be
entitled to reasonable compensation
for the duration of the temporary take
over by GRP, which compensation
shall take into account the reasonable
cost for the use of the Terminal and/or
Terminal Complex, (which is in the
amount at least equal to the debt
service
requirements
of
Concessionaire, if the temporary take
over should occur at the time when
Concessionaire is still servicing debts owed
to project lenders), any loss or damage to
the Development Facility, and other
consequential damages. If the parties
cannot
agree
on
the
reasonable
compensation of Concessionaire, or on the
liability of GRP as aforesaid, the matter
shall be resolved in accordance with
Section 10.01 [Arbitration]. Any amount
determined to be payable by GRP to
Concessionaire shall be offset from the
amount next payable by Concessionaire to
GRP.62
PIATCO
cannot,
by
mere
contractual
stipulation, contravene the Constitutional
provision
on
temporary
government
takeover and obligate the government to
pay "reasonable cost for the use of the
Terminal and/or Terminal Complex."63 Article
XII, section 17 of the 1987 Constitution envisions
a situation wherein the exigencies of the times
necessitate the government to "temporarily take
over or direct the operation of any privately
owned public utility or business affected with
public interest." It is the welfare and interest of
the public which is the paramount consideration
in determining whether or not to temporarily take
over a particular business. Clearly, the State in
effecting the temporary takeover is exercising its
police power. Police power is the "most essential,
insistent, and illimitable of powers."64 Its exercise
therefore must not be unreasonably hampered
nor its exercise be a source of obligation by the
government in the absence of damage due to
arbitrariness of its exercise.65 Thus, requiring the
government to pay reasonable compensation for
the reasonable use of the property pursuant to
the operation of the business contravenes the
Constitution.
V

Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage
vested in one or more persons or companies,
consisting in the exclusive right (or power) to
carry on a particular business or trade,
manufacture a particular article, or control the
sale
of
a
particular
commodity." 66 The
1987 Constitution
strictly
regulates
monopolies, whether private or public, and even
provides for their prohibition if public interest so
requires. Article XII, Section 19 of the 1987
Constitution states:
Sec. 19. The state shall regulate or prohibit
monopolies when the public interest so
requires. No combinations in restraint of
trade or unfair competition shall be
allowed.
Clearly, monopolies are not per se prohibited by
the Constitution but may be permitted to exist to
aid the government in carrying on an enterprise
or to aid in the performance of various services
and
functions in
the
interest
of
the
public.67 Nonetheless, a determination must first
be made as to whether public interest requires a
monopoly. As monopolies are subject to abuses
that can inflict severe prejudice to the public,
they are subject to a higher level of State
regulation than an ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997
Concession Agreement and the ARCA, is granted
the "exclusive right to operate a commercial
international passenger terminal within the Island
of Luzon" at the NAIA IPT III. 68This is with the
exception of already existing international
airports in Luzon such as those located in the
Subic Bay Freeport Special Economic Zone
("SBFSEZ"), Clark Special Economic Zone
("CSEZ") and in Laoag City.69 As such, upon
commencement of PIATCO's operation of NAIA IPT
III, Terminals 1 and 2 of NAIA would cease to
function as international passenger terminals.
This, however, does not prevent MIAA to use
Terminals 1 and 2 as domestic passenger
terminals or in any other manner as it may deem
appropriate except those activities that would
compete with NAIA IPT III in the latter's operation
as an international passenger terminal. 70 The
right granted to PIATCO to exclusively operate
NAIA IPT III would be for a period of twenty-five
(25) years from the In-Service Date 71 and
renewable for another twenty-five (25) years at
the option of the government.72 Both the 1997
Concession Agreement and the ARCA
53

further provide that, in view of the

exclusive right granted to PIATCO, the
concession
contracts
of
the
service
providers currently servicing Terminals 1
and 2 would no longer be renewed and
those
concession
contracts
whose
expiration are subsequent to the In-Service
Date would cease to be effective on the said
date.73
The operation of an international passenger
airport terminal is no doubt an undertaking
imbued with public interest. In entering into a
BuildOperate-and-Transfer contract for the
construction, operation and maintenance of NAIA
IPT III, the government has determined that
public interest would be served better if private
sector resources were used in its construction
and an exclusive right to operate be granted to
the private entity undertaking the said project, in
this case PIATCO. Nonetheless, the privilege given
to PIATCO is subject to reasonable regulation and
supervision by the Government through the MIAA,
which is the government agency authorized to
operate the NAIA complex, as well as DOTC, the
department to which MIAA is attached. 74
This is in accord with the Constitutional mandate
that a monopoly which is not prohibited must be
regulated.75While it is the declared policy of the
BOT
Law
to
encourage
private
sector
participation by "providing a climate of minimum
government regulations,"76 the same does not
mean
that
Government
must
completely
surrender its sovereign power to protect public
interest in the operation of a public utility as a
monopoly. The operation of said public utility can
not be done in an arbitrary manner to the
detriment of the public which it seeks to serve.
The right granted to the public utility may be
exclusive but the exercise of the right cannot run
riot. Thus, while PIATCO may be authorized to
exclusively operate NAIA IPT III as an international
passenger terminal, the Government, through the
MIAA, has the right and the duty to ensure that it
is done in accord with public interest. PIATCO's
right to operate NAIA IPT III cannot also violate
the rights of third parties.
Section 3.01(e) of the 1997
Agreement and the ARCA provide:
3.01 Concession Period
xxx

xxx

xxx

Concession

(e) GRP
confirms
that
certain
concession
agreements relative
to
certain services and operations currently
being undertaken at the Ninoy Aquino
International Airport passenger Terminal
I have a validity period extending
beyond the In-Service Date. GRP
through DOTC/MIAA, confirms that these
services and operations shall not be
carried over to the Terminal and the
Concessionaire
is
under no
legal
obligation to permit such carryover except
through
a
separate
agreement
duly
entered
into
with
Concessionaire.
In
the
event
Concessionaire becomes involved in any
litigation
initiated
by
any
such
concessionaire
or
operator,
GRP
undertakes
and
hereby
holds
Concessionaire free and harmless on full
indemnity basis from and against any loss
and/or any liability resulting from any such
litigation, including the cost of litigation
and the reasonable fees paid or payable to
Concessionaire's counsel of choice, all such
amounts shall be fully deductible by way of
an offset from any amount which the
Concessionaire is bound to pay GRP under
this Agreement.
During the oral arguments on December
10, 2002, the counsel for the petitioners-inintervention for G.R. No. 155001 stated
that there are two service providers whose
contracts are still existing and whose
validity extends beyond the In-Service
Date. One contract remains valid until
2008 and the other until 2010.77
We hold that while the service providers presently
operating at NAIA Terminal 1 do not have an
absolute right for the renewal or the extension of
their respective contracts, those contracts whose
duration extends beyond NAIA IPT III's In-ServiceDate should not be unduly prejudiced. These
contracts must be respected not just by the
parties thereto but also by third parties. PIATCO
cannot, by law and certainly not by contract,
render a valid and binding contract nugatory.
PIATCO, by the mere expedient of claiming an
exclusive right to operate, cannot require the
Government to break its contractual obligations
to the service providers. In contrast to the
arrastre and stevedoring service providers in the
case of Anglo-Fil Trading Corporation v.
Lazaro78 whose contracts consist of temporary
hold-over permits, the affected service providers
54

in the cases at bar, have a valid and binding

contract with the Government, through MIAA,
whose period of effectivity, as well as the other
terms and conditions thereof, cannot be violated.
In fine, the efficient functioning of NAIA IPT III is
imbued with public interest. The provisions of the
1997 Concession Agreement and the ARCA did
not strip government, thru the MIAA, of its right
to supervise the operation of the whole NAIA
complex, including NAIA IPT III. As the primary
government agency tasked with the job,79 it is
MIAA's responsibility to ensure that whoever by
contract is given the right to operate NAIA IPT III
will do so within the bounds of the law and with
due regard to the rights of third parties and
above all, the interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the
absence of the requisite financial capacity of the
Paircargo Consortium, predecessor of respondent
PIATCO, the award by the PBAC of the contract for
the construction, operation and maintenance of
the NAIA IPT III is null and void. Further,
considering that the 1997 Concession Agreement
contains material and substantial amendments,
which amendments had the effect of converting
the 1997 Concession Agreement into an entirely
different agreement from the contract bidded
upon, the 1997 Concession Agreement is similarly
null and void for being contrary to public policy.
The provisions under Sections 4.04(b) and (c) in
relation to Section 1.06 of the 1997 Concession
Agreement and Section 4.04(c) in relation to
Section 1.06 of the ARCA, which constitute a
direct
government
guarantee
expressly
prohibited by, among others, the BOT Law and its
Implementing Rules and Regulations are also null
and void. The Supplements, being accessory
contracts to the ARCA, are likewise null and void.
WHEREFORE, the 1997 Concession Agreement,
the
Amended
and
Restated
Concession
Agreement and the Supplements thereto are set
aside for being null and void. SO ORDERED.
7. G.R. No. 141833

March 26, 2003

LM
POWER
ENGINEERING
CORPORATION, petitioner, vs.
CAPITOL
INDUSTRIAL
CONSTRUCTION
GROUPS,
INC., respondent.

PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -like arbitration, mediation, negotiation and
conciliation -- are encouraged by the Supreme
Court. By enabling parties to resolve their
disputes amicably, they provide solutions that are
less
time-consuming,
less
tedious,
less
confrontational, and more productive of goodwill
and lasting relationships.1
The Case
Before us is a Petition for Review on
Certiorari2 under Rule 45 of the Rules of Court,
seeking to set aside the January 28, 2000
Decision of the Court of Appeals 3 (CA) in CA-GR
CV No. 54232. The dispositive portion of the
Decision reads as follows:
"WHEREFORE, the judgment appealed from
is REVERSED and SET ASIDE. The parties
are ORDERED to present their dispute to
arbitration in accordance with their Subcontract Agreement. The surety bond
posted by [respondent] is [d]ischarged." 4
The Facts
On February 22, 1983, Petitioner LM Power
Engineering Corporation and Respondent Capitol
Industrial Construction Groups Inc. entered into a
"Subcontract Agreement" involving electrical
work at the Third Port of Zamboanga. 5
On April 25, 1985, respondent took over some of
the work contracted to petitioner. 6 Allegedly, the
latter had failed to finish it because of its inability
to procure materials.7
Upon completing its task under the Contract,
petitioner billed respondent in the amount of
P6,711,813.90.8Contesting the accuracy of the
amount
of
advances
and
billable
accomplishments listed by the former, the latter
refused to pay. Respondent also took refuge in
the termination clause of the Agreement. 9 That
clause allowed it to set off the cost of the work
that petitioner had failed to undertake -- due to
termination or take-over -- against the amount it
owed the latter.
Because of the dispute, petitioner filed with the
Regional Trial Court (RTC) of Makati (Branch 141)
a Complaint10 for the collection of the amount
representing the alleged balance due it under the
55

Subcontract. Instead of submitting an Answer,

respondent filed a Motion to Dismiss, 11 alleging
that the Complaint was premature, because there
was no prior recourse to arbitration.

The Petition is unmeritorious.

In its Order12 dated September 15, 1987, the RTC

denied the Motion on the ground that the dispute
did not involve the interpretation or the
implementation of the Agreement and was,
therefore, not covered by the arbitral clause. 13

Petitioner claims that there is no conflict

regarding
the
interpretation
or
the
implementation of the Agreement. Thus, without
having to resort to prior arbitration, it is entitled
to collect the value of the services it rendered
through an ordinary action for the collection of a
sum of money from respondent. On the other
hand, the latter contends that there is a need for
prior arbitration as provided in the Agreement.
This is because there are some disparities
between the parties positions regarding the
extent of the work done, the amount of advances
and billable accomplishments, and the set off of
expenses incurred by respondent in its take-over
of petitioners work.

After trial on the merits, the RTC 14 ruled that the

take-over of some work items by respondent was
not equivalent to a termination, but a mere
modification, of the Subcontract. The latter was
ordered to give full payment for the work
completed by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered
the referral of the case to arbitration. The
appellate court held as arbitrable the issue of
whether respondents take-over of some work
items had been intended to be a termination of
the original contract under Letter "K" of the
Subcontract. It ruled likewise on two other issues:
whether petitioner was liable under the warranty
clause of the Agreement, and whether it should
reimburse respondent for the work the latter had
taken over.15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the
following issues for the Courts consideration:
"A
Whether
or
not
there
exist[s]
a
controversy/dispute between petitioner and
respondent regarding the interpretation and
implementation of the Sub-Contract Agreement
dated February 22, 1983 that requires prior
recourse to voluntary arbitration;
"B
In the affirmative, whether or not the
requirements provided in Article III 1 of CIAC
Arbitration Rules regarding request for arbitration
ha[ve] been complied with[.]"17
The Courts Ruling

First
Whether Dispute Is Arbitrable

Issue:

We side with respondent. Essentially, the dispute

arose from the parties ncongruent positions on
whether certain provisions of their Agreement
could be applied to the facts. The instant case
involves technical discrepancies that are better
left to an arbitral body that has expertise in those
areas. In any event, the inclusion of an arbitration
clause in a contract does not ipso facto divest the
courts of jurisdiction to pass upon the findings of
arbitral bodies, because the awards are still
judicially reviewable under certain conditions. 18
In the case before us, the Subcontract has the
following arbitral clause:
"6. The Parties hereto agree that any
dispute or conflict as regards to
interpretation and implementation of this
Agreement which
cannot
be
settled
between [respondent] and [petitioner]
amicably shall be settled by means of
arbitration x x x."19
Clearly, the resolution of the dispute between the
parties herein requires a referral to the provisions
of their Agreement. Within the scope of the
arbitration clause are discrepancies as to the
amount
of
advances
and
billable
accomplishments, the application of the provision
on termination, and the consequent set-off of
expenses.
A review of the factual allegations of the parties
reveals that they differ on the following
questions: (1) Did a take-over/termination occur?
56

(2) May the expenses incurred by respondent in

the take-over be set off against the amounts it
owed petitioner? (3) How much were the
advances and billable accomplishments?
The resolution of the foregoing issues lies in the
interpretation of the provisions of the Agreement.
According to respondent, the take-over was
caused by petitioners delay in completing the
work. Such delay was in violation of the provision
in the Agreement as to time schedule:
"G. TIME SCHEDULE
"[Petitioner] shall adhere strictly to the
schedule related to the WORK and
complete the WORK within the period set
forth in Annex C hereof. NO time extension
shall be granted by [respondent] to
[petitioner] unless a corresponding time
extension is granted by [the Ministry of
Public Works and Highways] to the
CONSORTIUM."20
Because of the delay, respondent alleges that it
took over some of the work contracted to
petitioner, pursuant to the following provision in
the Agreement:
"K. TERMINATION OF AGREEMENT
"[Respondent] has the right to terminate
and/or take over this Agreement for any of
the following causes:
xxx

xxx

xxx

6. If despite previous warnings by

[respondent], [petitioner] does not
execute the WORK in accordance
with this Agreement, or persistently
or flagrantly neglects to carry out
[its]
obligations
under
this
Agreement."21
Supposedly, as a result of the "take-over,"
respondent incurred expenses in excess of the
contracted price. It sought to set off those
expenses against the amount claimed by
petitioner for the work the latter accomplished,
pursuant to the following provision:
"If the total direct and indirect cost of
completing the remaining part of the
WORK exceed the sum which would have
been payable to [petitioner] had it

completed the WORK, the amount of such

excess [may be] claimed by [respondent]
from either of the following:
1. Any amount due [petitioner] from
[respondent] at the time of the termination
of this Agreement."22
The issue as to the correct amount of petitioners
advances and billable accomplishments involves
an evaluation of the manner in which the parties
completed the work, the extent to which they did
it, and the expenses each of them incurred in
connection therewith. Arbitrators also need to
look into the computation of foreign and local
costs of materials, foreign and local advances,
retention fees and letters of credit, and taxes and
duties as set forth in the Agreement. These data
can be gathered from a review of the Agreement,
pertinent portions of which are reproduced
hereunder:
"C. CONTRACT PRICE AND TERMS OF PAYMENT
xxx

xxx

xxx

"All progress payments to be made by

[respondent] to [petitioner] shall be subject
to a retention sum of ten percent (10%) of
the value of the approved quantities. Any
claims by [respondent] on [petitioner] may
be deducted by [respondent] from the
progress
payments
and/or
retained
amount. Any excess from the retained
amount after deducting [respondents]
claims shall be released by [respondent] to
[petitioner] after the issuance of [the
Ministry of Public Works and Highways] of
the Certificate of Completion and final
acceptance of the WORK by [the Ministry of
Public Works and Highways].
xxx

xxx

xxx

"D. IMPORTED MATERIALS AND EQUIPMENT

"[Respondent shall open the letters of
credit for the importation of equipment and
materials listed in Annex E hereof after the
drawings, brochures, and other technical
data of each items in the list have been
formally approved by [the Ministry of Public
Works and Highways]. However, petitioner
will still be fully responsible for all imported
materials and equipment.
57

"All expenses incurred by [respondent],

both in foreign and local currencies in
connection with the opening of the letters
of credit shall be deducted from the
Contract Prices.
xxx

xxx

xxx

"N. OTHER CONDITIONS

xxx

xxx

xxx

"2. All customs duties, import duties,

contractors taxes, income taxes, and other
taxes that may be required by any
government agencies in connection with
this Agreement shall be for the sole
account of [petitioner]."23
Being an inexpensive, speedy and amicable
method of settling disputes,24 arbitration -- along
with mediation, conciliation and negotiation -- is
encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of
the commercial kind.25 It is thus regarded as the
"wave of the future" in international civil and
commercial
disputes.26 Brushing
aside
a
contractual agreement calling for arbitration
between the parties would be a step backward. 27
Consistent with the above-mentioned policy of
encouraging
alternative
dispute
resolution
methods, courts should liberally construe
arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be
granted.28 Any doubt should be resolved in favor
of arbitration.29
Second
Prior Request for Arbitration

Issue:

According to petitioner, assuming arguendo that

the dispute is arbitrable, the failure to file a
formal
request
for
arbitration
with
the
Construction Industry Arbitration Commission
(CIAC) precluded the latter from acquiring
jurisdiction over the question. To bolster its
position, petitioner even cites our ruling in Tesco
Services Incorporated v. Vera.30 We are not
persuaded.
Section 1 of Article II of the old Rules of Procedure
Governing
Construction
Arbitration
indeed

required the submission

arbitration, as follows:

of

request

for

"SECTION. 1. Submission to Arbitration -Any party to a construction contract

wishing to have recourse to arbitration by
the Construction
Industry Arbitration
Commission (CIAC) shall submit its Request
for Arbitration in sufficient copies to the
Secretariat of the CIAC; PROVIDED, that in
the case of government construction
contracts, all administrative remedies
available to the parties must have been
exhausted within 90 days from the time
the dispute arose."
Tesco was promulgated by this Court, using the
foregoing provision as reference.
On the other hand, Section 1 of Article III of the
new Rules of Procedure Governing Construction
Arbitration has dispensed with this requirement
and recourse to the CIAC may now be availed of
whenever a contract "contains a clause for the
submission of a future controversy to arbitration,"
in this wise:
"SECTION
1. Submission
to
CIAC
Jurisdiction An arbitration clause in a
construction contract or a submission to
arbitration of a construction dispute shall
be deemed an agreement to submit an
existing or future controversy to CIAC
jurisdiction, notwithstanding the reference
to a different arbitration institution or
arbitral body in such contract or
submission. When a contract contains a
clause for the submission of a future
controversy to arbitration, it is not
necessary for the parties to enter into a
submission agreement before the claimant
may invoke the jurisdiction of CIAC."
The foregoing amendments in the Rules were
formalized by CIAC Resolution Nos. 2-91 and 393.31
The difference in the two provisions was clearly
explained
in China
Chang
Jiang
Energy
Corporation (Philippines) v. Rosal Infrastructure
Builders
et
al.32 (an
extended
unsigned
Resolution) and reiterated in National Irrigation
Administration v. Court of Appeals,33 from which
we quote thus:

58

"Under the present Rules of Procedure, for

a particular construction contract to fall
within the jurisdiction of CIAC, it is merely
required that the parties agree to submit
the same to voluntary arbitration Unlike in
the original version of Section 1, as applied
in the Tesco case, the law as it now stands
does not provide that the parties should
agree to submit disputes arising from their
agreement specifically to the CIAC for the
latter to acquire jurisdiction over the same.
Rather, it is plain and clear that as long as
the parties agree to submit to voluntary
arbitration, regardless of what forum they
may choose, their agreement will fall
within the jurisdiction of the CIAC, such
that, even if they specifically choose
another forum, the parties will not be
precluded from electing to submit their
dispute before the CIAC because this right
has been vested upon each party by law,
i.e., E.O. No. 1008."34
Clearly, there is no more need to file a request
with the CIAC in order to vest it with jurisdiction
to decide a construction dispute.
The arbitral clause in the Agreement is a
commitment on the part of the parties to submit
to arbitration the disputes covered therein.
Because that clause is binding, they are expected
to abide by it in good faith. 35 And because it
covers the dispute between the parties in the
present case, either of them may compel the
other to arbitrate.36
Since petitioner has already filed a Complaint
with the RTC without prior recourse to arbitration,
the proper procedure to enable the CIAC to
decide on the dispute is to request the stay or
suspension of such action, as provided under RA
876 [the Arbitration Law].37
WHEREFORE, the Petition is DENIED and the
assailed Decision AFFIRMED. Costs against
petitioner. SO ORDERED.
8. G.R. No. 168384 August 18, 2006
CHARLES
BERNARD
H.
REYES
doing
business under the name and style CBH
REYES ARCHITECTS,Petitioner, vs. ANTONIO
YULO BALDE II, PAULINO M. NOTO and
ERNESTO J. BATTAD, SR., in their capacities
as Arbitrators of the CONSTRUCTION
INDUSTRY
ARBITRATION
COMMISSION,

SPOUSES CESAR and CARMELITA ESQUIG

and ROSEMARIE PAPAS, Respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
Before the Court is a "Motion to Inhibit the
Honorable Chief Justice and Motion to Refer Case
to the Court En Banc," dated August 4, 2006, filed
by Atty. Francisco I. Chavez.
I.
According to the movant, the Motion to Inhibit the
Chief Justice "is not an accusation of wrongdoing
on the part of the Honorable Chief Justice. Rather
it is impelled by Atty. Chavezs perception that in
this case, the Honorable Chief Justice has not
acted in an objective, impartial and neutral
manner in disposing of incidental issues and
motions presented by the parties."
The movant adds that "the dizzying pace by
which private respondents motions have been
received and favorably acted upon in record time
supports Atty. Chavezs perception that private
respondents motions without as much as
requiring petitioner to respond thereto have
been granted special attention and favor by the
Honorable Chief Justice." (bold types in original)
Atty. Chavezs perception about the alleged
"closeness and the good relationship between
Atty. Ordoez and the Chief Justice" to impair the
latters objectivity and impartiality has no basis,
for the following reasons:
(1) The actions taken on the various motions and
incidents enumerated by the movant were made
by the entire membership of the First Division.
Not being the ponente, the Chief Justice did not
initiate or propose any of the actions and rulings
made by the Court. Like the three other Division
members, he merely concurred with the
actions/rulings proposed by the ponente. While
some orders and actions, especially temporary
restraining orders, are issued in the name of the
Division chairman (who in this case is the Chief
Justice), they are really collective actions of the
entire Division, not merely those of the Chair. This
is the normal procedure in all Divisions, not just in
the First.
(2) The alleged "unpleasant interaction these
past 19 years between Atty. Chavez and Atty.
59

Sedfrey Ordoez with whom Chief Justice worked

either as associate or partner sometime ago" has
nothing to do at all with the concurrences made
by the Chief Justice on this case. These
concurrences were given on the basis only of
legal merit, and on nothing else.
(3) True, the Chief Justice was an associate (not a
partner) in 1961 to 1963 in the Salonga, Ordoez
and Associates, which incidentally had been
dissolved in 1987. True also, he has had a close
personal and professional relationship with the
principal partner in that law firm, Sen. Jovito R.
Salonga. That is the reason the Chief Justice has
inhibited himself from cases in which Sen.
Salonga was/is a party or a counsel. 1

any case in this, or any other, court. Neither is

the Chief Justice aware of any alleged personal
interest of Atty. Ordoez to uphold the CIAC.
(7) In a few months, the incumbent Chief Justice
is scheduled to retire from the judiciary. It is
totally inconceivable that he will smear his eleven
year record of integrity, independence and ethical
conduct in the Supreme Court with any action
that is less than "objective, impartial and
neutral." On the other hand, he assures movant
(and all concerned) that he will continue with his
vow "to lead a judiciary characterized by four Ins:
independence,
integrity,
industry
and
intelligence."
II.

However, he had no similar closeness with Atty.

Ordoez. That is why he has not inhibited himself
from cases involving Atty. Ordoez. In fact, he has
not hesitated, on several occasions, to vote
against parties/causes represented by the former
Secretary of Justice.
(4) In fairness to all concerned, Atty. Ordoez has
never spoken, directly or indirectly, with the Chief
Justice on any matter pending in the Supreme
Court and in any other court. He has never
attempted, directly or indirectly, personally or
through others, to influence the Chief Justice in
any manner whatsoever. In fact, the Chief Justice
understands that Atty. Ordoez has been
seriously ill, going in and out of the hospital, over
the past several months. And yet the Chief Justice
has not even visited or spoken with him during
such period.
(5) On the other hand, the Chief Justice, when so
warranted by the facts and law, has voted in
favor of causes and parties represented by Atty.
Chavez. One outstanding example is Chavez v.
PCGG (360 Phil. 133, December 9, 1998; 366 Phil.
863, May 19, 1999), which was written by then
Associate Justice Artemio V. Panganiban. Atty.
Chavez knows that he has won the vote of the
Chief Justice without his having to speak with or
influence him in any manner.
(6) Movants perception "that Atty. Ordoezs
concern for and interest in upholding the CIAC
jurisdiction must have somehow been relayed to
the Honorable Chief Justice" is completely
baseless. As already stated, there had been no
conversation or communication, directly or
indirectly, personally or through others, between
the Chief Justice and Atty. Ordoez (or anyone
representing him) about any matter related to

Following his misperception of "closeness and

bonding between Atty. Ordoez and the Chief
Justice,"
the
movant
assailed
certain
"proceedings in this Honorable Courts First
Division." However, these proceedings can easily
be explained, thus:
(1) Respondents Motion to Include Hon. Pedro
Sabundayo, Jr., Presiding Judge, Regional Trial
Court of Muntinlupa City, Branch 203, as public
respondent was denied because Section 4, Rule
45 of the Rules of Court provides that in a petition
for review on certiorari to the Supreme Court,
there is no need to implead the lower courts or
judges
thereof
either
as
petitioners
or
respondents. There is no irregularity when the
Resolution denying respondents motion was
issued when the Chief Justice was on official
leave. The remaining Members of the Division can
proceed with official business despite the
absence of the Chief Justice as long as the
required majority is present. This is in accordance
with Section 4(3), Article VIII of the Constitution
which provides that "cases or matters heard by a
division shall be decided or resolved with the
concurrence of a majority of the Members who
actually took part in the deliberations on the
issues in the case and voted thereon, and in no
case, without the concurrence of at least three of
such Members."
(2) The issuance of a TRO enjoining the Presiding
Judge of Muntinlupa City, Branch 203 from
continuing with any of the proceedings in Civil
Case No. 03-110 and from enforcing the Order of
the trial court dated June 29, 2006 ordering the
sheriff to implement the writ of execution dated
May 17, 2006, is in order. Respondents
60

satisfactorily established that they are entitled to

the injunction.
It appears from the records that petitioner filed a
complaint against respondents with the Regional
Trial Court of Muntinlupa City which was docketed
as Civil Case No. 03-110 praying that an
accounting be rendered to determine the cost of
the materials purchased by respondent Papas;
that respondents be ordered to pay the cost of
the additional works done on the property; that
the Design-Build Construction Agreement be
ordered rescinded because respondents breach
the same; and that respondents be ordered to
pay moral and exemplary damages. Based on the
same Design-Build Construction Agreement,
respondents filed with the Construction Industry
Arbitration Commission (CIAC) a complaint
praying that petitioner be ordered to finish the
project or, in the alternative, to pay the cost to
finish the same; to reimburse the overpayments
made by respondents; and to pay liquidated
damages, attorneys fees and costs of the suit.
On June 8, 2005, 2 the CIAC rendered a decision
on the merits of the case awarding in favor of
respondents the sum of P4,419,094.98. The case
is presently on appeal with the Court of
Appeals 3 docketed as CA-G.R. SP No. 90136. 4
Meanwhile, on July 29, 2005, the trial court
rendered judgment in Civil Case No. 03-110 in
favor of petitioner ordering the respondents to
pay P840,300.00 representing the cost of the
additional works; P296,658.95 representing the
balance of the contract price; P500,000.00 by
way of moral damages; P500,000.00 as
exemplary damages; P500,000.00 as attorneys
fees and costs of the suit. In an Order dated May
17, 2006, Judge Sabundayo, Jr. directed Sheriff
Melvin T. Bagabaldo to implement the writ of
execution by causing the respondents to "render
an accounting of all the construction materials
they bought for the construction of the project x x
x; to levy the goods and chattels of the
[respondents] x x x and to make the sale thereof
x x x." 5
In their Second Manifestation with Prayer for
Issuance
of
a
Temporary
Restraining
6
Order/Injunction filed with this Court on July 10,
2006, respondents averred that from July 7, 2006
until 4 oclock in the morning of July 8, 2006,
Sheriff Bagabaldo went to the residence of
respondent Papas and levied several of her
personal properties. 7Respondents bewailed that
despite the pronouncement of the Court of

Appeals that the CIAC, not the Regional Trial

Court, which has jurisdiction over the case, and
despite the pendency of the instant case before
us, the Regional Trial Court still proceeded with
the implementation of the writ.
It is important to mention that in both cases, the
parties insist that the other breached their
obligation under the Design-Build Construction
Agreement. Petitioner however argues that the
Regional Trial Court properly took cognizance of
the case while respondents claim that CIAC has
the exclusive and original jurisdiction on the
subject matter. Otherwise stated, if we rule in the
instant case that CIAC has jurisdiction over the
controversy, then it would necessarily follow that
the Regional Trial Court does not have
jurisdiction. Since it did not acquire jurisdiction
over the controversy, then the writ of execution
that it issued was void. If we allow the RTC Judge
and the Sheriff to continue with the proceedings
in Civil Case No. 03-110, then, whatever
judgment that would be rendered in the instant
case would be rendered nugatory. In view of the
above
circumstances,
respondents
clearly
established that they are entitled to the issuance
of a TRO.
Thus on July 12, 2006, the Court issued a
Resolution that reads:
Acting on the prayer for issuance of a temporary
restraining order/injunction, the Court further
resolves to issue a TEMPORARY RESTRAINING
ORDER enjoining the Presiding Judge, Regional
Trial Court, Branch 203, Muntinlupa City, from
continuing with any of the proceedings in Civil
Case No. 03-110 entitled "Charles Bernard H.
Reyes, doing business under the name and style
of CBH Reyes Architects vs. Spouses Mely and
Cesar Esquig, et al." [subject matter of the
assailed Court of Appeals decision and resolution
dated February 18, 2005 and May 20, 2005,
respectively, in CA-G.R. SP No. 83816 entitled
"Charles Bernard H. Reyes, doing business under
the name and style CBH REYES ARCHITECTS vs.
Antonio Yulo Balde II, et al"] and from enforcing
the Order dated June 29, 2006 ordering the
designated sheriff to implement the writ of
execution dated May 17, 2006 to enforce the
decision dated July 29, 2005 in Civil Case No. 03110, upon the private respondents filing of a
bond in the amount of Three Hundred Thousand
Pesos (P300,000.00) within a period of five (5)
days from notice hereof x x x.

61

(3) Thereafter, respondents filed an Urgent

Motion for Clarification of the above resolution.
Accordingly, on July 19, 2006, we issued a
resolution which is a clarification of the TRO
issued on July 12, 2006. Both the July 12, 2006
and July 19, 2006 Resolutions are covered by the
same bond in the amount of P300,000.00.
(4) A petition review under Rule 45 of the Rules of
Court is not a matter of right but of sound judicial
discretion. 8For purposes of determining whether
the petition should be dismissed or denied, or
where the petition is given due course, the
Supreme Court may require or allow the filing of
such pleadings, briefs, memoranda or documents
as it may deem necessary within such periods
and under such conditions as it may consider
appropriate, and impose the corresponding
sanctions in case of non-filing or unauthorized
filing of such pleadings and documents or noncompliance with the conditions therefor. 9 This
Court exercised its discretion when it did not
require
petitioner
to
file
comment
on
respondents Manifestation with Urgent Motion to
Resolve with Prayer for Injunction, Second
Manifestation with Prayer for Issuance of a
Temporary Restraining Order/Injunction, Urgent
Motion for Clarification,and Compliance.
(5) The Court did not exceed its jurisdiction;
neither did it encroach on the jurisdiction of the
Court of Appeals or of the lower court when it
issued the Resolution dated July 12, 2006. As
discussed, there is compelling reason to issue a
TRO as the respondents satisfactorily established
they are entitled to the relief demanded. It may
further be said that the issuance of a TRO on July
12, 2006 is not a final determination of the
matter. It was a remedy intended to avoid any
irreparable injury that might be caused to the
parties. It may be recalled that the CIAC and the
trial court each asserted its jurisdiction over the
controversy to the exclusion of the other.
(6) There is no truth or basis to the allegation that
the case has been given "special attention." All
actions on the motions and incidents have been
performed regularly.
WHEREFORE, the Motion to Inhibit the Honorable
Chief Justice is DENIED. The Motion to Refer Case
to the Court En Banc is GRANTED. SO ORDERED.
9. G.R. No. 171763
MARIA
LUISA
INC., Petitioner, vs.

June 5, 2009
PARK
ASSOCIATION,
SAMANTHA MARIE T.

ALMENDRAS
and
PIA
ALMENDRAS, Respondents.

ANGELA

T.

DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the
Decision1 dated August 31, 2005 and the
Resolution2 dated February 13, 2006 of the Court
of Appeals in CA-G.R. SP No. 81069.
The facts, culled from the records, are as follows:
On February 6, 2002, respondents Samantha
Marie T. Almendras and Pia Angela T. Almendras
purchased from MRO Development Corporation a
residential lot located in Maria Luisa Estate Park,
Banilad, Cebu City. After some time, respondents
filed with petitioner Maria Luisa Park Association,
Incorporated (MLPAI) an application to construct a
residential house, which was approved in
February
10,
2002.
Thus,
respondents
commenced the construction of their house.
Upon ocular inspection of the house, MLPAI found
out that respondents violated the prohibition
against multi-dwelling3 stated in MLPAIs Deed of
Restriction. Consequently, on April 28, 2003,
MLPAI sent a letter to the respondents,
demanding that they rectify the structure;
otherwise, it will be constrained to forfeit
respondents construction bond and impose
stiffer penalties.
In a Letter4 dated April 29, 2003, respondents, as
represented by their father Ruben D. Almendras
denied having violated MLPAIs Deed of
Restriction.
On May 5, 2003, MLPAI, in its reply, pointed out
respondents specific violations of the subdivision
rules, to wit: (a) installation of a second water
meter and tapping the subdivisions main water
pipeline, and (b) construction of "two separate
entrances that are mutually exclusive of each
other." It likewise reiterated its warning that
failure to comply with its demand will result in its
exercise of more stringent measures.
In view of these, respondents filed with the
Regional Trial Court of Cebu City, Branch 7, a
Complaint5 on June 2, 2003 for Injunction,
Declaratory Relief, Annulment of Provisions of
Articles and By-Laws with Prayer for Issuance of a
62

Temporary Restraining Order (TRO)/Preliminary

Injunction.
MLPAI moved for the dismissal of the complaint
on the ground of lack of jurisdiction and failure to
comply with the arbitration clause 6 provided for in
MLPAIs by-laws.
In an Order7 dated July 31, 2003, the trial court
dismissed the complaint for lack of jurisdiction,
holding that it was the Housing and Land Use
Regulatory Board (HLURB) that has original and
exclusive jurisdiction over the case. Respondents
moved for reconsideration but their motion was
denied.
Aggrieved, the respondents questioned the
dismissal of their complaint in a petition for
certiorari and prohibition before the Court of
Appeals.
The Court of Appeals granted the petition in its
Decision dated August 31, 2005, the dispositive
portion of which reads:
WHEREFORE, in view of all the foregoing, the
petition is GRANTED and the assailed orders of
the respondent trial court are declared NULL
AND VOID, and SET ASIDE. Respondent RTC is
hereby ordered to take jurisdiction of Civil Case
No. CEB-29002.
SO ORDERED.

MLPAI filed a motion for reconsideration but it

was denied by the Court of Appeals in its
Resolution dated February 13, 2006.
Hence, this petition raising the following issues:
I.
WHETHER THE HONORABLE COURT OF APPEALS
HAS DISREGARDED LAWS AND WELL-SETTLED
JURISPRUDENCE IN HOLDING THAT JURISDICTION
OVER [THE] DISPUTE BETWEEN HOMEOWNERS
AND HOMEOWNERS ASSOCIATION LIES WITH THE
REGULAR COURTS AND NOT WITH HLURB.
II.
WHETHER THERE IS NO OTHER RELIEF AND
REMEDY AVAILABLE TO PETITIONER TO AVERT
THE CONDUCT OF A VOID [PROCEEDING] THAN
THE PRESENT RECOURSE.9

Simply stated, the issue is whether the appellate

court erred in ruling that it was the trial court and
not the HLURB that has jurisdiction over the case.
Petitioner MLPAI contends that the HLURB 10 has
exclusive
jurisdiction
over
the
present
controversy, it being a dispute between a
subdivision lot owner and a subdivision
association, where the latter aimed to compel
respondents to comply with the MLPAIs Deed of
Restriction, specifically the provision prohibiting
multi-dwelling.
Respondents, on the other hand, counter that the
case they filed against MLPAI is one for
declaratory relief and annulment of the provisions
of the by-laws; hence, it is outside the
competence of the HLURB to resolve. They
likewise stated that MLPAIs rules and regulations
are discriminatory and violative of their basic
rights as members of the association. They also
argued that MLPAIs acts are illegal, immoral and
against public policy and that they did not
commit any violation of the MLPAIs Deed of
Restriction.
We agree with the trial court that the instant
controversy falls squarely within the exclusive
and original jurisdiction of the Home Insurance
and Guaranty Corporation (HIGC),11 now HLURB.
Originally,
administrative
supervision
over
homeowners associations was vested by law
with the Securities and Exchange Commission
(SEC). However, pursuant to Executive Order No.
535,12 the HIGC assumed the regulatory and
adjudicative
functions
of
the
SEC
over
homeowners associations. Section 2 of E.O. No.
535 provides:
2. In addition to the powers and functions vested
under the Home Financing Act, the Corporation,
shall have among others, the following additional
powers:
(a) . . . and exercise all the powers,
authorities and responsibilities that are
vested on the Securities and Exchange
Commission with respect to homeowners
associations, the provision of Act 1459, as
amended by P.D. 902-A, to the contrary
notwithstanding;
(b) To regulate and supervise the activities
and operations of all houseowners
63

associations
therewith;

registered

in

accordance

xxxx
Moreover, by virtue of this amendatory law, the
HIGC also assumed the SECs original and
exclusive jurisdiction under Section 5 of
Presidential Decree No. 902-A to hear and decide
cases involving:
b) Controversies arising out of intra-corporate or
partnership relations, between and among
stockholders, members, or associates; between
any and/or all of them and the corporation,
partnership or association of which they are
stockholders,
members
or
associates,
respectively; and between such corporation,
partnership or association and the state insofar
as it concerns their individual franchise or right to
exist as such entity;13(Emphasis supplied.)
xxxx
Consequently,
in Sta.
Clara
Homeowners
Association v. Gaston14 and Metro Properties, Inc.
v. Magallanes Village Association, Inc.,15 the Court
recognized HIGCs "Revised Rules of Procedure in
the Hearing of Home Owners Disputes,"
pertinent portions of which are reproduced below:
RULE
II
Disputes Triable by HIGC/Nature of Proceedings
Section 1. Types of Disputes The HIGC or any
person, officer, body, board or committee duly
designated or created by it shall have jurisdiction
to hear and decide cases involving the following:

Republic Act No. 8763,17 entitled "Home Guaranty

Corporation Act of 2000."
In the present case, there is no question that
respondents are members of MLPAI as they have
even admitted it.18Therefore, as correctly ruled by
the trial court, the case involves a controversy
between the homeowners association and some
of its members. Thus, the exclusive and original
jurisdiction lies with the HLURB.
Indeed, in Sta. Clara Homeowners Association v.
Gaston, we held:
. . . the HIGC exercises limited jurisdiction
over
homeowners'
disputes. The
law
confines its authority to controversies that
arise from any of the following intracorporate relations: (1) between and among
members of the association; (2) between any
and/or all of them and the association of
which they are members; and (3) between the
association and the state insofar as the
controversy concerns its right to exist as a
corporate entity.19(Emphasis supplied.)
The extent to which the HLURB has been vested
with quasi-judicial authority must also be
determined by referring to Section 3 of P.D. No.
957,20 which provides:
SEC. 3. National Housing Authority. The National
Housing
Authority
shall
have
exclusive
jurisdiction to regulate the real estate trade and
business in accordance with the provisions of this
Decree. (Emphasis supplied.)

xxxx

The provisions of P.D. No. 957 were intended to

encompass all questions regarding subdivisions
and condominiums. The intention was aimed at
providing for an appropriate government agency,
the HLURB, to which all parties aggrieved in the
implementation
of
provisions
and
the
enforcement of contractual rights with respect to
said category of real estate may take recourse.
The business of developing subdivisions and
corporations being imbued with public interest
and welfare, any question arising from the
exercise of that prerogative should be brought to
the HLURB which has the technical know-how on
the matter.22

Later on, the above-mentioned powers and

responsibilities, which had been vested in the
HIGC with respect to homeowners associations,
were transferred to the HLURB pursuant to

It is apparent that although the complaint was

denominated
as
one
for
declaratory
relief/annulment of contracts, the allegations
therein reveal otherwise. It should be stressed

xxxx
(b) Controversies arising out of intra-corporate
relations between and among members of the
association, between any or all of them and
the association of which they are members,
and
between
such
association
and
the
state/general public or other entity in so far as it
concerns its right to exist as a corporate
entity.16 (Emphasis supplied.)

64

that respondents neither asked for the

interpretation of the questioned by-laws nor did
they allege that the same is doubtful or
ambiguous and require judicial construction. In
fact, what respondents really seek to accomplish
is to have a particular provision of the MLPAIs bylaws nullified and thereafter absolve them from
any violations of the same.23 In Kawasaki Port
Service Corporation v. Amores,24 the rule was
stated:
. . . where a declaratory judgment as to a
disputed fact would be determinative of issues
rather than a construction of definite stated
rights, status and other relations, commonly
expressed in written instrument, the case is not
one for declaratory judgment.25
Contrary to the observation of the Court of
Appeals, jurisdiction cannot be made to depend
on the exclusive characterization of the case by
one of the parties.26 While respondents are
questioning the validity or legality of the MLPAIs
articles of incorporation and its by-laws, they did
not, however, raise any legal ground to support
its nullification. The legality of the by-laws in its
entirety was never an issue in the instant
controversy but merely the provision prohibiting
multi-dwelling which respondents assert they did
not violate.27 So to speak, there is no justiciable
controversy here that would warrant declaratory
relief, or even an annulment of contracts.
We reiterate that in jurisdictional issues, what
determines the nature of an action for the
purpose of ascertaining whether a court has
jurisdiction over a case are the allegations in the
complaint and the nature of the relief sought. 28
Moreover, under the doctrine of primary
administrative jurisdiction, courts cannot or will
not determine a controversy where the issues for
resolution demand the exercise of sound
administrative discretion requiring the special
knowledge, experience, and services of the
administrative tribunal to determine technical
and intricate matters of fact.29
In the instant case, the HLURB has the expertise
to resolve the basic technical issue of whether
the house built by the respondents violated the
Deed of Restriction, specifically the prohibition
against multi-dwelling.1avvphi1
As observed in C.T. Torres Enterprises, Inc. v.
Hibionada:30

The argument that only courts of justice can

adjudicate claims resoluble under the provisions
of the Civil Code is out of step with the fastchanging times. There are hundreds of
administrative bodies now performing this
function by virtue of a valid authorization from
the legislature. This quasi-judicial function, as it is
called, is exercised by them as an incident of the
principal power entrusted to them of regulating
certain activities falling under their particular
expertise.
In the Solid Homes case for example the Court
affirmed the competence of the Housing and
Land Use Regulatory Board to award damages
although this is an essentially judicial power
exercisable ordinarily only by the courts of
justice. This departure from the traditional
allocation of governmental powers is justified by
expediency, or the need of the government to
respond swiftly and competently to the pressing
problems of the modern world.31
We also note that the parties failed to abide by
the arbitration agreement in the MLPAI by-laws.
Article XII of the MLPAI by-laws entered into by
the parties provide:
Mode of Dispute Resolution
Mode of Dispute Resolution. Should any member
of the Association have any grievance, dispute or
claim against the Association or any of the
officers and governors thereof in connection with
their function and/or position in the Association,
the parties shall endeavor to settle the same
amicably. In the event that efforts at amicable
settlement fail, such dispute, difference or
disagreement shall be brought by the member to
an arbitration panel composed of three (3)
arbitrators for final settlement, to the exclusion of
all other fora. Such arbitration may be initiated by
giving notice to the other party, such notice
designating one (1) independent arbitrator.
Within thirty (30) from the receipt of said notice,
the other party shall designate a second
independent arbitrator by written notice to the
first party. Both arbitrators shall within fifteen
(15) days thereafter select a third independent
arbitrator, who shall be the chairman of the
Arbitration Tribunal. In the event that the two (2)
arbitrators respectively nominated by the parties
fail to select the third independent arbitrator
within the fifteen-day period, the third arbitrator
shall be jointly selected by the parties. In the
event that the other party does not nominate an
arbitrator, the Arbitration Tribunal shall be
65

composed of one (1) arbitrator nominated by the

party initiating the proceedings. The Arbitration
Tribunal shall render its decision within forty-five
(45) days from the selection of the third
arbitrator, which decision shall be valid and
binding between the parties unless repudiated
within five (5) days from receipt thereof on
grounds that the same was procured through
fraud or violence, or that there are patent or
gross errors in facts made basis of the decision.
The award of the Tribunal shall be enforced by a
court of competent jurisdiction. Venue of action
covered by this Article shall be in the courts of
justice of Cebu City only.
Under the said provision of the by-laws, any
dispute or claim against the Association or any of
its officers and governors shall first be settled
amicably. If amicable settlement fails, such
dispute shall be brought by the member to an
arbitration panel for final settlement. The arbitral
award shall be valid and binding between the
parties unless repudiated on grounds that the
same was procured through fraud or violence, or
that there are patent or gross errors in the
tribunals findings of facts upon which the
decision was based.
The terms of Article XII of the MLPAI by-laws
clearly express the intention of the parties to
bring first to the arbitration process all disputes
between them before a party can file the
appropriate action. The agreement to submit all
disputes to arbitration is a contract. As such, the
arbitration agreement binds the parties thereto,
as well as their assigns and heirs. 32 Respondents,
being members of MLPAI, are bound by its bylaws, and are expected to abide by it in good
faith.33
In the instant case, we observed that while both
parties exchanged correspondence pertaining to
the alleged violation of the Deed of Restriction,
they, however, made no earnest effort to resolve
their differences in accordance with the
arbitration clause provided for in their by-laws.
Mere exchange of correspondence will not suffice
much less satisfy the requirement of arbitration.
Arbitration being the mode of settlement
between the parties expressly provided for in
their by-laws, the same should be respected.
Unless an arbitration agreement is such as
absolutely to close the doors of the courts against
the parties, the courts should look with favor
upon such amicable arrangements. 34

Arbitration is one of the alternative methods of

dispute resolution that is now rightfully vaunted
as "the wave of the future" in international
relations, and is recognized worldwide. To brush
aside a contractual agreement calling for
arbitration in case of disagreement between the
parties would therefore be a step backward. 35
WHEREFORE, the instant petition is GRANTED.
The Decision dated August 31, 2005 and
Resolution dated February 13, 2006 of the Court
of Appeals in CA-G.R. SP No. 81069 are SET
ASIDE. The Order dated July 31, 2003 of the
Regional Trial Court of Cebu City, Branch 7, is
hereby REINSTATED. SO ORDERED.
10.
G.R. No. 180765
2009
FORT
BONIFACIO
CORPORATION, Petitioner, vs.
DOMINGO, Respondent.

February 27,
DEVELOPMENT
MANUEL
N.

DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on
Certiorari under Rule 45 of the Revised Rules of
Court, filed by petitioner Fort Bonifacio
Development Corporation, seeking to reverse and
set aside the Decision dated 19 July 2007 1 and
the Resolution dated 10 December 2007 2 of the
Court of Appeals in CA-G.R. SP No. 97731. The
appellate court, in its assailed Decision, affirmed
the Order3 of the Regional Trial Court (RTC) of
Pasay City, Branch 109, in Civil Case No. 06-2000CFM, denying the Motion to Dismiss of petitioner;
and in its assailed Resolution, refused to
reconsider its decision.
Petitioner, a domestic corporation duly organized
under Philippine laws, is engaged in the real
estate development business. Respondent is the
assignee of L and M Maxco Specialist Engineering
Construction
(LMM
Construction)
of
its
receivables from petitioner.
On 5 July 2000, petitioner entered into a Trade
Contract with LMM Construction for partial
structural and architectural works on one of its
projects, the Bonifacio Ridge Condominium.
According to the said Contract, petitioner had the
right to withhold the retention money equivalent
to 5% of the contract price for a period of one
year after the completion of the project.
66

Retention money is a portion of the contract

price, set aside by the project owner, from all
approved billings and retained for a certain
period to guarantee the performance by the
contractor of all corrective works during the
defect-liability period.4
Due to the defect and delay in the work of LMM
Construction on the condominium project,
petitioner unilaterally terminated the Trade
Contract5 and hired another contractor to finish
the rest of the work left undone by LMM
Construction. Despite the pre-termination of the
Trade Contract, petitioner was liable to pay LMM
Construction a fraction of the contract price in
proportion to the works already performed by the
latter.6
On 30 July 2004, petitioner received the first
Notice of Garnishment against the receivables of
LMM Construction issued by the Construction
Industry Arbitration Commission (CIAC) in
connection with CIAC Case No. 11-2002 filed by
Asia-Con Builders against LMM Construction,
wherein LMM Construction was adjudged liable to
Asia-Con
Builders
for
the
amount
of P5,990,927.77.
On 30 April 2005, petitioner received a letter
dated 18 April 2005 from respondent inquiring on
the retention money supposedly due to LMM
Construction and informing petitioner that a
portion of the amount receivable by LMM
Construction therefrom was already assigned to
him as evidenced by the Deed of Assignment
executed by LMM Construction in respondents
favor on 28 February 2005. LMM Construction
assigned its receivables from petitioner to
respondent to settle the alleged unpaid obligation
of LMM Construction to respondent amounting
toP804,068.21.
Through its letter dated 11 October 2005,
addressed
to
respondent,
petitioner
acknowledged that LMM Construction did have
receivables still with petitioner, consisting of the
retention money; but petitioner also advised
respondent that the retention money was not yet
due and demandable and may be ascertained
only after the completion of the corrective works
undertaken by the new contractor on the
condominium project. Petitioner also notified
respondent that part of the receivables was also
being garnished by the other creditors of LMM
Construction.

Unsatisfied with the reply of petitioner,

respondent sent another letter dated 14 October
2005 asserting his ownership over a portion of
the retention money assigned to him and
maintaining that the amount thereof pertaining to
him can no longer be garnished to satisfy the
obligations of LMM Construction to other persons
since it already ceased to be the property of LMM
Construction by virtue of the Deed of Assignment.
Attached to respondents letter was the
endorsement of LMM Construction dated 17
January 2005 approving respondents claim upon
petitioner
in
the
amount
of P804,068.21
chargeable against the retention money that may
be received by LMM Construction from the
petitioner.
Before respondents claim could be fully
addressed, petitioner, on 6 June 2005, received
the second Notice of Garnishment against the
receivables of LMM Construction, this time, issued
by the National Labor Relations Commission
(NLRC) to satisfy the liability of LMM Construction
to Nicolas Consigna in NLRC Case No. 00-0705483-2003.
On 13 July 2005, petitioner received an Order of
Delivery of Money issued by the Office of the
Clerk of Court and Ex-Officio Sheriff enforcing the
first Notice of Garnishment and directing
petitioner to deliver to Asia-Con Builders, through
the Sheriff, the amount of P5,990,227.77
belonging to LMM Construction. In compliance
with the said Order, petitioner was able to deliver
to Asia-Con Builders on 22 July 2005 and on 11
August 2005 partial payments amounting
to P1,170,601.81, covered by the appropriate
Acknowledgement Receipts.
A third Notice of Garnishment against the
receivables of LMM Construction, already
accompanied by an Order of Delivery of Money,
both issued by the RTC of Makati, Branch 133,
was served upon petitioner on 26 January 2006.
The Order enjoined petitioner to deliver the
amount of P558,448.27 to the Sheriff to answer
for the favorable judgment obtained by Concrete
Masters, Inc. (Concrete Masters) against LMM
Construction in Civil Case No. 05-164.
Petitioner, in a letter dated 31 January 2006,
categorically denied respondents claim on the
retention money, reasoning that after the
completion of the rectification works on the
condominium project and satisfaction of the
various garnishment orders, there was no more
left of the retention money of LMM Construction.
67

It would appear, however, that petitioner fully

satisfied the first Notice of Garnishment in the
amount ofP5,110,833.44 only on 31 January
2006,7 the very the same date that it expressly
denied respondents claim. Also, petitioner
complied with the Notice of Garnishment and its
accompanying Order of Delivery of Money in the
amount of P558,448.27 on 8 February 2006, a
week after its denial of respondents claim. 8

of Appeals in its Resolution dated 10 December

2007.

The foregoing events prompted respondent to file

a Complaint for collection of sum of money,
against both LMM Construction and petitioner,
docketed as Civil Case No. 06-0200-CFM before
the RTC of Pasay City, Branch 109.

For the resolution of this Court is the sole issue of:

Instead of filing an Answer, petitioner filed a

Motion to Dismiss Civil Case No. 06-0200-CFM on
the ground of lack of jurisdiction over the subject
matter. Petitioner argued that since respondent
merely stepped into the shoes of LMM
Construction as its assignor, it was the CIAC and
not the regular courts that had jurisdiction over
the dispute as provided in the Trade Contract.
On 6 June 2006, the RTC issued an Order denying
the Motion to Dismiss of petitioner, ruling that a
full-blown trial was necessary to determine which
one between LMM Construction and petitioner
should be made accountable for the sum due to
respondent.
Petitioner sought remedy from the Court of
Appeals by filing a Petition for Certiorari,
docketed as CA-G.R. SP No. 97731, challenging
the RTC Order dated 6 June 2006 for having been
rendered by the trial court with grave abuse of
discretion.
In its Decision promulgated on 19 July 2007, the
Court of Appeals dismissed the Petition for
Certiorari and affirmed the 6 June 2006 Order of
the RTC denying the Motion to Dismiss of
petitioner. The appellate court rejected the
argument of petitioner that respondent, as the
assignee of LMM Construction, was bound by the
stipulation in the Trade Contract that disputes
arising therefrom should be brought before the
CIAC. The Court of Appeals declared that
respondent was not privy, but a third party, to the
Trade Contract; and money claims of third
persons against the contractor, developer, or
owner of the project are lodged in the regular
courts and not in the CIAC.
Similarly ill-fated was petitioners Motion for
Reconsideration, which was denied by the Court

Petitioner now comes to this Court via this instant

Petition for Review on Certiorari praying for the
reversal of the 19 July 2007 Decision of the Court
of Appeals and 6 June 2006 Order of the RTC and,
ultimately, for the dismissal of Civil Case No. 060200-CFM pending before the RTC.

WHETHER OR NOT THE RTC HAS JURISDICTION

OVER CIVIL CASE NO. 06-0200-CFM.
The jurisdiction of CIAC is defined
Executive Order No. 1008 as follows:

under

SECTION 4. Jurisdiction.The CIAC shall have

original and exclusive jurisdiction over disputes
arising from, or connected with, contracts
entered into by parties involved in construction in
the Philippines, whether the disputes arises
before or after the completion of the contract, or
after the abandonment or breach thereof. These
disputes may involve government or private
contracts. For the Board to acquire jurisdiction,
the parties to a dispute must agree to submit the
same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not
limited to violation of specifications for materials
and workmanship; violation of the terms of
agreement; interpretation and/or application of
contractual provisions; amount of damages and
penalties; commencement time and delays;
maintenance and defects; payment default of
employer or contractor and changes in contract
cost.
Excluded from the coverage of this law are
disputes
arising
from
employer-employee
relationships which shall continue to be covered
by the Labor Code of the Philippines.
In assailing the 19 July 2007 Decision of the Court
of Appeals, petitioner invoked Article 1311 of the
Civil Code on relativity of contracts. According to
said provision, all contracts shall only take effect
between the contracting parties, their assigns
and heirs except when the rights and obligations
arising from the contract are not transmissible.
Petitioner argues that the appellate court, in
recognizing the existence of the Deed of
Assignment executed by LMM Construction -- in
favor of respondent -- of its receivables under the
68

Trade Contract, should have considered the

concomitant result thereof, i.e., that respondent
became a party to the Trade Contract and,
therefore, bound by the arbitral clause therein.
Respondent counters that the CIAC is devoid of
jurisdiction over money claims of third persons
against the contractor, developer or owner of the
project. The jurisdiction of the CIAC is limited to
settling disputes arising among contractors,
developers and/or owners of construction
projects. It does not include the determination of
who among the many creditors of the contractor
should enjoy preference in payment of its
receivables from the developer/owner.
It is an elementary rule of procedural law that
jurisdiction of the court over the subject matter is
determined by the allegations of the complaint,
irrespective of whether or not the plaintiff is
entitled to recover upon all or some of the claims
asserted therein. As a necessary consequence,
the jurisdiction of the court cannot be made to
depend upon the defenses set up in the answer
or upon the motion to dismiss; for otherwise, the
question of jurisdiction would almost entirely
depend upon the defendant. What determines
the jurisdiction of the court is the nature of the
action pleaded as appearing from the allegations
in the complaint. The averments therein and the
character of the relief sought are the ones to be
consulted.9 Accordingly, the issues in the instant
case can only be properly resolved by an
examination and evaluation of respondents
allegations in his Complaint in Civil Case No. 060200-CFM.
The allegations in respondents Complaint are
clear and simple: That LMM Construction had an
outstanding obligation to respondent in the
amount of P804,068.21; that in payment of the
said amount, LMM Construction assigned to
respondent its receivables from petitioner, which
assignment was properly made known to
petitioner as early as 18 April 2005; that despite
due notice of such assignment, petitioner still
refused to deliver the amount assigned to
respondent, giving preference, instead, to the
garnishing creditors of LMM Construction; that at
the time petitioner was notified of the
assignment, only one notice of garnishment, the
first Notice of Garnishment, was received by it;
that
had
petitioner
properly
recognized
respondents right as an assignee of a portion of
the receivables of LMM Construction, there could
have been sufficient residual amounts to satisfy
respondents claim; and that, uncertain over

which one between LMM Construction and

petitioner he may resort to for payment,
respondent named them both as defendants in
Civil Case No. 06-0200-CFM. A scrupulous
examination of the aforementioned allegations in
respondents Complaint unveils the fact that his
cause of action springs not from a violation of the
provisions of the Trade Contract, but from the
non-payment of the monetary obligation of LMM
Construction to him.
A cause of action is a partys act or omission that
violates the rights of the other.10 The right of the
respondent that was violated, prompting him to
initiate Civil Case No. 06-0200-CFM, was his right
to receive payment for the financial obligation
incurred by LMM Construction and to be preferred
over the other creditors of LMM Construction, a
right which pre-existed and, thus, was separate
and distinct from the right to payment of LMM
Construction under the Trade Contract.
Petitioners
unceasing
reliance
on
Article
11
1311 of the Civil Code on relativity of contracts
is unavailing. It is true that respondent, as the
assignee of the receivables of LMM Construction
from petitioner under the Trade Contract, merely
stepped into the shoes of LMM Construction.
However, it bears to emphasize that the right of
LMM Construction to such receivables from
petitioner under the Trade Contract is not even in
dispute in Civil Case No. 06-0200-CFM. What
respondent puts in issue before the RTC is the
purportedly arbitrary exercise of discretion by the
petitioner in giving preference to the claims of
the other creditors of LMM Construction over the
receivables of the latter.
It is encouraged that disputes arising from
construction contracts be referred first to the
CIAC for their arbitration and settlement, since
such cases would often require expertise and
technical knowledge in construction. Hence,
some of the matters over which the CIAC may
exercise jurisdiction, upon agreement of the
parties to the construction contract, "include but
[are] not limited to violation of specifications for
materials and workmanship; violation of the
terms of agreement; interpretation and/or
application of contractual provisions; amount of
damages and penalties; commencement time
and delays; maintenance and defects; payment
default of employer or contractor and changes in
contract cost."12 Although the jurisdiction of the
CIAC is not limited to the afore-stated
enumeration, other issues which it could take
cognizance of must be of the same or a closely
69

related kind or species applying the principle of

ejusdem generis in statutory construction.
Respondents claim is not even constructionrelated at all. Construction is defined as referring
to all on-site works on buildings or altering
structures,
from
land
clearance
through
completion including excavation, erection and
assembly and installation of components and
equipment.13 Petitioners
insistence
on
the
application of the arbitration clause of the Trade
Contract to respondent is clearly anchored on an
erroneous premise that respondent is seeking to
enforce a right under the same. Again, the right
to the receivables of LMM Construction from
petitioner under the Trade Contract is not being
impugned herein. In fact, petitioner readily
conceded that LMM Construction still had
receivables due from petitioner, and respondent
did not even have to refer to a single provision in
the Trade Contract to assert his claim. What
respondent is demanding is that a portion of such
receivables amounting to P804,068.21 should
have been paid to him first before the other
creditors of LMM Construction, which, clearly,
does not require the CIACs expertise and
technical knowledge of construction.
The adjudication of Civil Case No. 06-0200-CFM
necessarily involves the application of pertinent
statutes and jurisprudence to matters such as
obligations, contracts of assignment, and, if
appropriate, even preference of credits, a task
more suited for a trial court to carry out after a
full-blown trial, than an arbitration body
specifically devoted to construction contracts.
This Court recognizes the laudable objective of
voluntary arbitration to provide a speedy and
inexpensive method of settling disputes by
allowing the parties to avoid the formalities,
delay, expense and aggravation which commonly
accompany
ordinary
litigation,
especially
litigation which goes through the entire hierarchy
of courts. It cannot, however, altogether
surrender to arbitration those cases, such as the
one at bar, the extant facts of which plainly call
for the exercise of jurisdiction by the regular
courts for their resolution.
WHEREFORE, premises considered, the instant
Petition is DENIED. The Decision dated 19 July
2007 and the Resolution dated 10 December
2007 of the Court of Appeals in CA-G.R. SP No.
97731 are hereby AFFIRMED in toto. Costs
against the petitioner. SO ORDERED.

11.

G.R. No. 176709

May 8, 2009

FORT
BONIFACIO
DEVELOPMENT
CORPORATION, Petitioner, vs. HON. EDWIN D.
SORONGON
and
VALENTIN
FONG, Respondents.
DECISION
TINGA, J.:
Petitioner
Fort
Bonifacio
Development
Corporation (petitioner), a corporation registered
under Philippine laws, is engaged in the business
of real estate development. Respondent, Valentin
Fong (respondent) doing business under the
name VF Industrial Sales is the assignee of L & M
Maxco Specialist Constructions (Maxco) retention
money from the Bonifacio Ridge Condominium
Phase 1 (BRCP 1).
In this Petition for Review,1 petitioner assails the
Decision2 of the Court of Appeals dated
November 30, 2006 which ruled that it is the
regional trial court and not the Construction
Industry Arbitration Commission (CIAC) that has
jurisdiction over respondents claim.
The facts are as follows:
On July 2000, Petitioner entered into a trade
contract with Maxco wherein Maxco would
undertake the structural and partial architectural
package of the BRCP 1. Later petitioner accused
Maxco of delay in completion of its work and on
August 24, 2004 sent the latter a notice of
termination. Petitioner also instructed Maxco to
perform remedial measures prior to the contract
expiration pursuant to Clause 23.1 of the
contract.
Subsequently, Maxco was sued by its creditors
including respondent for debts unrelated to BRCP
1. In order to settle the collection suit, on
February
28, 2005, Maxco assigned its
receivables representing its retention money from
the BRCP 1 in the amount of one million five
hundred seventy seven thousand one hundred
fifteen
pesos
and
ninety
centavos
(P1,577,115.90). On April 18, 2005, respondent
wrote to petitioner, informing the latter of
Maxcos assignment in his favor and asking the
latter to confirm the validity of Maxcos
receivables.3 Petitioner replied, informing the
respondent that Maxco did have receivables,
however these were not due and demandable
70

until January of next year, moreover the amount

had to be ascertained and liquidated.
A subsequent exchange of correspondence failed
to settle the matter. Specifically, on January 31,
2006,4petitioner through counsel, wrote to
respondent informing the latter that there is no
more amount due to Maxco from petitioner after
the rectification of defect as well as the
satisfaction of notices of garnishment dated July
30, 20045 and January 26, 2006.6 On February 13,
2006, respondent filed a complaint for a sum of
money against petitioner and Maxco in the
Regional
Trial
Court
of
Mandaluyong
7
City. Respondent claimed that there were
sufficient residual amounts to pay the receivables
of Maxco at the time he served notice of the
assignment.
The
subsequent
notices
of
garnishment should not adversely affect the
receivables assigned to him. The retention money
was over due in January 2006 and despite
demand, petitioner did not pay the amount
subject of the deed of assignment. Petitioner
however, paid out the retention money to other
garnishing creditors of Maxco to the detriment of
respondent.
On March 16, 2006, instead of filing an Answer,
petitioner filed a Motion to Dismiss on the ground
of lack of jurisdiction over the subject
matter.8 Petitioner argued that since respondent
merely stepped into the shoes of Maxco as its
assignee, it was the CIAC and not the regular
courts that had jurisdiction over the dispute as
provided in the Trade Contract. Judge Edwin
Sorongon issued an Order dated June 27, 2006
denying the motion to dismiss.9 Petitioner moved
for reconsideration but this was denied in an
Order dated August 15, 2006.
On October 16, 2006, petitioner filed a petition
for certiorari and prohibition with the Court of
Appeals. On November 30, 2006, the Court of
Appeals denied the petition for lack of merit. The
dispositive portion reads:
WHEREFORE, premises considered, the present
petition is hereby DENIED DUE COURSE and
accordingly DISMISSED for lack of merit. The
assailed Orders dated June 27, 2006 and August
15, 2006 of respondent Judge in Civil Case No.
MC-06-2928 are hereby AFFIRMED.
With costs against the petitioner. SO ORDERED. 10
The appellate court held that it was the trial court
and not the Construction Industry Arbitration

Commission (CIAC) that had jurisdiction over the

claims of Valentin Fong. The claim could not be
construed as related to the construction industry
as it is for enforcement of Maxcos deed of
assignment over its retention money.
Petitioner
moved
for
reconsideration
on
December 22, 2006 but this was denied by the
appellate court in a resolution dated February 29,
2006.
Hence, the present petition for review on
certiorari. Petitioners sets forth four (4) errors
committed by the appellate court namely: (1) the
original
and
exclusive
jurisdiction
over
respondents complaint is vested with the CIAC;
(2) Respondents complaint failed to state a
cause of action; (3) the claim of respondent has
already been extinguished; and (4) the conditions
precedent for the complaint have not been
complied with.
The petition lacks merit.
In reference to the first error, Section 4 of
Executive Order No. 1008, Series of 1985 (E.O.
No. 1008) sets forth the jurisdiction of CIAC. To
wit:
SECTION 4. Jurisdiction.The CIAC shall have
original and exclusive jurisdiction over disputes
arising from, or connected with, contracts
entered into by parties involved in construction in
the Philippines, whether the dispute arises before
or after the completion of the contract, or after
the abandonment or breach thereof. These
disputes may involve government or private
contracts. For the Board to acquire jurisdiction,
the parties to a dispute must agree to submit the
same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not
limited to violation of specifications for materials
and workmanship; violation of the terms of
agreement; interpretation and/or application of
contractual provisions; maintenance and defects;
payment default of employer or contractor and
changes in contract cost.
Excluded from the coverage of this law are
disputes
arising
from
employer-employee
relationships which shall continue to be covered
by the Labor Code of the Philippines.
Jurisdiction is defined as the authority to try, hear
and decide a case.11 Moreover, that jurisdiction of
71

the court over the subject matter is determined

by the allegations of the complaint without regard
to whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted
therein is a well entrenched principle. 12 In this
regard, the jurisdiction of the court does not
depend upon the defenses pleaded in the answer
or in the motion to dismiss, lest the question of
jurisdiction would almost entirely depend upon
the defendant.13
An examination of the allegations in Fongs
complaint reveals that his cause of action springs
not from a violation of the provisions of the Trade
Contract, but from the assignment of Maxcos
retention money to him and failure of petitioner
to turn over the retention money. The allegations
in Fongs Complaint are clear and simple: (1) That
Maxco had an outstanding obligation to
respondent; (2) Maxco assigned to Fong its
retention from petitioner in payment of the said
obligation,; (3) Petitioner as early as April 18,
2005 was notified of the assignment; (4) Despite
due notice of such assignment, petitioner still
refused to deliver the amount assigned to
respondent, giving preference, instead, to the 2
other creditors of Maxco; (5) At the time
petitioner was notified of the assignment, there
were only one other notice of garnishment and
there were sufficient residual amounts to satisfy
Fongs claim; and (6) uncertain over which one
between Maxco and petitioner he may resort to
for payment, respondent named them both as
defendants in Civil Case No. 06-0200-CFM.
While it is true that respondent, as the assignee
of the receivables of Maxco from petitioner under
the Trade Contract, merely stepped into the
shoes of Maxco. However, the right of Maxco to
the retention money from petitioner under the
trade contract is not even in dispute in Civil Case
No. 06-0200-CFM. Respondent raises as an issue
before the RTC is the petitioners alleged
unjustified preference to the claims of the other
creditors
of
Maxco
over
the
retention
money.1awphi1
Although the jurisdiction of the CIAC is not limited
to the instances enumerated in Section 4 of E. O.
No. 1008, Fongs claim is not even constructionrelated at all. This court has held that:
"Construction is defined as referring to all on-site
works on buildings or altering structures, from
land clearance through completion including
excavation,
erection
and
assembly
and
installation
of
components
and
14
equipment." Thus, petitioners insistence on the

application of the arbitration clause of the Trade

Contract to Fong is clearly anchored on an
erroneous premise that the latter is seeking to
enforce a right under the trade contract. This
premise cannot stand since the right to the
retention money of Maxco under the Trade
Contract is not being impugned herein. It bears
mentioning that petitioner readily conceded the
existence of the retention money. Fongs demand
that the portion of retention money should have
been paid to him before the other creditors of
Maxco clearly, does not require the CIACs
expertise
and
technical
knowledge
of
construction.
The adjudication of Civil Case necessarily
involves the application of pertinent statutes and
jurisprudence to matters of assignment and
preference of credits. As this Court held in Fort
Bonifacio
Development
Corporation
v.
Domingo,15 this task more suited for a trial court
to carry out after a full-blown trial, than an
arbitration
body
specifically
devoted
to
construction contracts.
The second error raised also has not merit. Failure
to state a cause of action refers to the
insufficiency of allegation in the pleading. In
resolving a motion to dismiss based on the failure
to state a cause of action only the facts alleged in
the complaint must be considered. The test is
whether the court can render a valid judgment on
the complaint based on the facts alleged and the
prayer asked for.
In this case the complaint alleges that:
x x x at the time he served notice of assignment
to defendant FBDC there was only one notice of
garnishment that the latter had received and
there were still sufficient residual amounts to pay
that assigned by defendant Maxco to the plaintiff.
Subsequent notices of garnishment received by
defendant FBDC could not adversely affect the
amounts already assigned to the plaintiff as they
are already his property, no longer that of
defendant Maxco.16
From this statement alone, it is clear that a cause
of action is present in the complaint filed a quo.
Respondent has specifically alleged that the
undue preference given to other creditors of
Maxco over the retention money by petitioner
was to the prejudice of his rights.
Petitioner next asserts that the appellate court
erred in not ruling that the claim of respondent
72

was extinguished by payment to the other

garnishing creditors of Maxco. The assignment of
this as an error is misleading as this is precisely
one of the issues that need to be resolved in a full
blown trial and one of the reasons that
respondent impleaded Maxco and petitioner in
the alternative.
The final error raised by petitioner that the other
judgment creditors17 as well as the trial court that
issued the writ of garnishment and CIAC should
have been impleaded as defendants in the case
as they were indispensable parties is likewise
weak. Section 7, Rule 3 of the Revised Rules of
Court provides for the compulsory joinder of
indispensable parties without whom no final
determination can be had of an action. An
indispensable party is defined as one who has
such an interest in the controversy or subject
matter that a final adjudication cannot be made,
in his absence, without injuring or affecting that
interest.18 The other judgment creditors are
entitled to the fruits of the final judgments
rendered in their favor. Their rights are distinct
from the rights acquired by the respondent over
the portion of the retention money assigned to
the latter by Maxco. Their interests are in no way
affected by any judgment to be rendered in this
case.1avvphi1
WHEREFORE, premises considered, the instant
Petition
is DENIED.
The
Decision
dated
November 30, 2006 and the Resolution dated
February 19, 2007 of the Court of Appeals in CAG.R. SP No. 96532 are hereby AFFIRMED. SO
ORDERED.
12.
G.R. No. 180640
2009

April 24,

HUTAMA-RSEA
JOINT
OPERATIONS,
INC., Petitioner, vs. CITRA METRO MANILA
TOLLWAYS CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition1 for Review on Certiorari
under Rule 45 of the Rules of Court seeking to set
aside the Decision2 dated 23 May 2007 and
Resolution3 dated 16 November 2007 of the Court
of Appeals in CA-G.R. SP No. 92504.
The facts, culled from the records, are as follows:

Petitioner
HUTAMA-RSEA
Joint
Operations
Incorporation and respondent Citra Metro Manila
Tollways Corporation are corporations organized
and existing under Philippine laws. Petitioner is a
sub-contractor engaged in engineering and
construction works. Respondent, on the other
hand, is the general contractor and operator of
the South Metro Manila Skyway Project (Skyway
Project).
On 25 September 1996, petitioner and
respondent
entered
into
an
Engineering
Procurement
Construction
Contract
(EPCC)
whereby
petitioner
would
undertake
the
construction of Stage 1 of the Skyway Project,
which stretched from the junction of Buendia
Avenue, Makati City, up to Bicutan Interchange,
Taguig City. As consideration for petitioners
undertaking, respondent obliged itself under the
EPCC to pay the former a total amount of
US$369,510,304.00.4
During the construction of the Skyway Project,
petitioner wrote respondent on several occasions
requesting payment of the formers interim
billings, pursuant to the provisions of the EPCC.
Respondent only partially paid the said interim
billings, thus, prompting petitioner to demand
that respondent pay the outstanding balance
thereon, but respondent still failed to do so. 5
The Skyway Project was opened on 15 December
1999 for public use, and toll fees were
accordingly collected. After informing respondent
that the construction of the Skyway Project was
already complete, petitioner reiterated its
demand that respondent pay the outstanding
balance on the interim billings, as well as the
"Early Completion Bonus" agreed upon in the
EPCC. Respondent refused to comply with
petitioners demands.6
On 24 May 2004, petitioner, through counsel,
sent a letter to respondent demanding payment
of the following: (1) the outstanding balance on
the interim billings; (2) the amount of petitioners
final billing; (3) early completion bonus; and (4)
interest charges on the delayed payment.
Thereafter, petitioner and respondent, through
their respective officers and representatives, held
several meetings to discuss the possibility of
amicably settling the dispute. Despite several
meetings and continuous negotiations, lasting for
a period of almost one year, petitioner and
respondent failed to reach an amicable
settlement.7
73

Petitioner finally filed with the Construction

Industry Arbitration Commission (CIAC) a Request
for Arbitration, seeking to enforce its money
claims against respondent.8 Petitioners Request
was docketed as CIAC Case No. 17-2005.

(5) Is [petitioner] entitled to payment of

interest on the amounts of its claims for
unpaid billings and early completion
bonus? If so, at what rate and for what
period?;

In its Answer ad cautelam with Motion to Dismiss,

respondent averred that the CIAC had no
jurisdiction over CIAC Case No. 17-2005.
Respondent argued that the filing by petitioner of
said case was premature because a condition
precedent, i.e., prior referral by the parties of
their dispute to the Dispute Adjudication Board
(DAB), required by Clause 20.4 of the EPCC, had
not been satisfied or complied with. Respondent
asked the CIAC to dismiss petitioners Request for
Arbitration in CIAC Case No. 17-2005 and to direct
the parties to comply first with Clause 20.4 of the
EPCC.9

(6) Which of the parties is entitled to

reimbursement of the arbitration costs
incurred? 11

After submission by the parties of the necessary

pleadings on the matter of jurisdiction, the CIAC
issued on 30 August 2005, an Order in CIAC Case
No. 17-2005, favoring petitioner. The CIAC ruled
that it had jurisdiction over CIAC Case No. 172005, and that the determination of whether
petitioner had complied with Clause 20.4 of the
EPCC was a factual issue that may be resolved
during the trial. It then ordered respondent to file
an
Answer
to
petitioners
Request
for
Arbitration.10
After respondent and petitioner filed an Answer
and a Reply, respectively, in CIAC Case No. 172005, the CIAC conducted a preliminary
conference, wherein petitioner and respondent
signed the "Terms of Reference" outlining the
issues to be resolved, viz:
(1) Is prior resort to the DAB a precondition
to submission of the dispute to arbitration
considering that the DAB was not
constituted?;
(2) Is [herein petitioner] entitled to the
balance of the principal amount of the
contract? If so, how much?;
(3) Is [petitioner] entitled to the early
compensation bonus net of VAT due
thereon? If so, how much?;
(4) Was there delay in the completion of
the project? If so, is [herein respondent]
entitled to its counterclaim for liquidated
damages?;

Respondent, however, subsequently filed an

Urgent Motion requesting that CIAC refrain from
proceeding with the trial proper of CIAC Case No.
17-2005 until it had resolved the issue of whether
prior resort by the parties to DAB was a condition
precedent to the submission of the dispute to
CIAC.12 Respondents Urgent Motion was denied
by the CIAC in its Order dated 6 December
2005.13
Respondent filed a Motion for Reconsideration of
the CIAC Order dated 6 December 2005.14 The
CIAC issued, on 12 December 2005, an Order
denying
respondents
Motion
for
Reconsideration.15 It held that prior resort by the
parties to DAB was not a condition precedent for
it to assume jurisdiction over CIAC Case No. 172005. Aggrieved, respondent assailed the CIAC
Order dated 12 December 2005 by filing a special
civil action for certiorari and prohibition with the
Court of Appeals,16 docketed as CA-G.R. SP No.
92504.
On 23 May 2007, the Court of Appeals rendered
its Decision in CA-G.R. SP No. 92504, annulling
the 12 December 2005 Order of the CIAC, and
enjoining the said Commission from proceeding
with CIAC Case No. 17-2005 until the dispute
between petitioner and respondent had been
referred to and decided by the DAB, to be
constituted by the parties pursuant to Clause
20.4 of the EPCC. The appellate court, thus, found
that the CIAC exceeded its jurisdiction in taking
cognizance of petitioners Request for Arbitration
in CIAC Case No. 17-2005 despite the latters
failure to initially refer its dispute with respondent
to the DAB, as directed by Clause 20.4 of the
EPCC.
The dispositive portion of the 23 May 2007
Decision of the Court of Appeals reads:
WHEREFORE, the instant petition is GRANTED and
the order of the Arbitration Tribunal of the
Construction Industry Arbitration Commission
dated December 12, 2005 is hereby ANNULED
and SET ASIDE and, instead, [CIAC, members of
74

the Arbitral Tribunal,17 and herein petitioner],

their agents or anybody acting in their behalf, are
enjoined from further proceeding with CIAC Case
No. 17-2005, promulgating a decision therein,
executing the same if one has already been
promulgated or otherwise enforcing said order of
December 12, 2005 until the dispute has been
referred to and decided by the Dispute
Adjudication Board to be constituted by the
parties in accordance with Sub-Clause 20.4 of the
Engineering Procurement Construction Contract
dated September 25, 1996.
Petitioner filed a Motion for Reconsideration of
the afore-mentioned Decision but this was denied
by the Court of Appeals in a Resolution dated 16
November 2007.
Hence, petitioner filed the instant Petition for
Review before us raising the sole issue of whether
CIAC has jurisdiction over CIAC Case No. 17-2005.
Section 4 of Executive Order No. 1008
the jurisdiction of CIAC, thus:

18

defines

SECTION 4. Jurisdiction. - The CIAC shall have

original and exclusive jurisdiction over disputes
arising from, or connected with, contracts
entered into by parties involved in construction in
the Philippines, whether the disputes arises
before or after the completion of the contract, or
after the abandonment or breach thereof. These
disputes may involve government or private
contracts. For the Board to acquire jurisdiction,
the parties to a dispute must agree to submit the
same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not
limited to violation of specifications for materials
and workmanship; violation of the terms of
agreement; interpretation and/or application of
contractual provisions; amount of damages and
penalties; commencement time and delays;
maintenance and defects; payment default of
employer or contractor and changes in contract
cost.
Excluded from the coverage of this law are
disputes
arising
from
employer-employee
relationships which shall continue to be covered
by the Labor Code of the Philippines. (Emphasis
ours.)
Further, Section 1, Article III of the CIAC Rules of
Procedure
Governing
Construction
19
Arbitration (CIAC Rules), provides:

SECTION 1. Submission to CIAC Jurisdiction. An

arbitration clause in a construction contract or a
submission to arbitration of a construction
dispute shall be deemed an agreement to submit
an existing or future controversy to CIAC
jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body in
such contract or submission. When a contract
contains a clause for the submission of a future
controversy to arbitration, it is not necessary for
the parties to enter into a submission agreement
before the claimant may invoke the jurisdiction of
CIAC.
An arbitration agreement or a submission to
arbitration shall be in writing, but it need not be
signed by the parties, as long as the intent is
clear that the parties agree to submit a present
or future controversy arising from a construction
contract to arbitration.
It may be in the form of exchange of letters sent
by post or by telefax, telexes, telegrams or any
other modes of communication. (Emphasis ours.)
Based on the foregoing provisions, the CIAC shall
have jurisdiction over a dispute involving a
construction contract if said contract contains an
arbitration
clause
(nothwithstanding
any
reference by the same contract to another
arbitration institution or arbitral body); or, even in
the absence of such a clause in the construction
contract, the parties still agree to submit their
dispute to arbitration.
It is undisputed that in the case at bar, the EPCC
contains an arbitration clause in which the
petitioner and respondent explicitly agree to
submit to arbitration any dispute between them
arising from or connected with the EPCC, under
the following terms and conditions20 :
CLAIMS, DISPUTES and ARBITRATION
xxxx
20.3 Unless the member or members of the
Dispute Adjudication Board have been previously
mutually agreed upon by the parties and named
in the Contract, the parties shall, within 28 days
of the Effective Date, jointly ensure the
appointment of a Dispute Adjudication Board.
Such Dispute Adjudication Board shall comprise
suitably qualified persons as members, the
number of members being either one or three, as
stated in the Appendix to Tender. If the Dispute
75

Adjudication Board is to comprise three members,

each party shall nominate one member for the
approval of the other party, and the parties shall
mutually agree upon and appoint the third
member (who shall act as chairman).
The terms of appointment
Adjudication Board shall:

of

the

Dispute

(a) incorporate the model terms published

by the Fdration Internationale des
Ingnieurs-Conseils (FIDIC),
(b) require each member of the Dispute
Adjudication Board to be, and to remain
throughout the appointment, independent
of the parties,
(c) require the Dispute Adjudication Board
to act impartially and in accordance with
the Contract, and
(d) include undertakings by the parties (to
each other and to the Dispute Adjudication
Board) that the members of the Dispute
Adjudication
Board
shall
in
no
circumstances be liable for breach of duty
or of contract arising out of their
appointment; the parties shall indemnify
the members against such claims.
The terms of the remuneration of the Dispute
Adjudication Board, including the remuneration of
each member and of any specialist from whom
the Dispute Adjudication Board may require to
seek advice, shall be mutually agreed upon by
the Employer, the Contractor and each member
of the Dispute Adjudication Board when agreeing
such terms of appointment. In the event of
disagreement, the remuneration of each member
shall include reimbursement for reasonable
expenses, a daily fee in accordance with the daily
fee established from time to time for arbitrators
under the administrative and financial regulations
of the International Centre for Settlement of
Investment Disputes, and a retainer fee per
calendar month equivalent to three times such
daily fee.
The Employer and the Contractor shall each pay
one-half of the Dispute Adjudication Boards
remuneration in accordance with its terms of
remuneration. If, at any time, either party shall
fail to pay its due proportion of such
remuneration, the other party shall be entitled to

make payment on his behalf and recover if from

the party in default.
The Dispute Adjudication Boards appointment
may be terminated only by mutual agreement of
the Employer and the Contractor. The Dispute
Adjudication Boards appointment shall expire
when the discharge referred to in Sub-Clause
13.12 shall have become effective, or at such
other time as the parties may mutually agree.
It, at any time, the parties so agree, they may
appoint a suitably qualified person to replace (or
to be available to replace) any or all members of
the Dispute Adjudication Board. The appointment
will come into effect if a member of the Dispute
Adjudication Board declines to act or is unable to
act as a result of death, disability, resignation or
termination of appointment. If a member so
declines or is unable to act, and no such
replacement is available to act, the member shall
be replaced in the same manner as such member
was to have been nominated.
If any of the following conditions apply, namely:
(a) the parties fail to agree upon the
appointment of the sole member of a oneperson Dispute Adjudication Board within
28 days of the Effective Date,
(b) either party fails to nominate an
acceptable member, for the Dispute
Adjudication Board of three members,
within 28 days of the Effective Date,
(c) the parties fail to agree upon the
appointment of the third member (to act as
chairman) within 28 days of the Effective
Date, or
(d) the parties fail to agree upon the
appointment of a replacement member of
the Dispute Adjudication Board within 28
days of the date on which a member of the
Dispute Adjudication Board declines to act
or is unable to act as a result of death,
disability, resignation or termination of
appointment,
then the person or administration named in the
Appendix to the Tender shall, after due
consultation with the parties, nominate such
member of the Dispute Adjudication Board, and
such nomination shall be final and conclusive.
76

20.4 If a dispute arises between the Employer

and the Contractor in connection with, or arising
out of, the Contract or the execution of the
Works, including any dispute as to any opinion,
instruction,
determination,
certification
or
valuation of the Employers Representative, the
dispute shall initially be referred in writing to the
Dispute Adjudication Board for its decision, with a
copy to the other party. Such reference shall state
that it is made under this Sub-Clause. The parties
shall promptly make available to the Dispute
Adjudication Board all such information, access to
the Site, and appropriate facilities, as the Dispute
Adjudication Board may require for the purposes
of rendering its decision. No later than the fiftysixth day after the day on which it received such
reference, the Dispute Adjudication Board, acting
as a panel of expert(s) and not as arbitrator(s),
shall give notice of its decision to the parties.
Such notice shall include reasons and shall state
that
it
is
given
under
this
SubClause.1awphi1.zw+
Unless the Contract has already been repudiated
or terminated, the Contractor shall, in every case,
continue to proceed with the Works with all due
diligence, and the Contractor and the Employer
shall give effect forthwith to every decision of the
Dispute Adjudication Board, unless and until the
same shall be revised, as hereinafter provided, in
an amicable settlement or an arbitral award.
If either party is dissatisfied with the Dispute
Adjudication Boards decision, then either party,
on or before the twenty-eighth day after the day
on which it received notice of such decision, may
notify the other party of its dissatisfaction. If the
Dispute Adjudication Board fails to give notice of
its decision on or before the fifty-sixth day after
the day on which it received the reference, then
either party, on or before the twenty-eighth day
after the day on which the said period of fifty-six
days has expired, may notify the other party of its
dissatisfaction. In either event, such notice of
dissatisfaction shall state that it is given under
this Sub-Clause, such notice shall set out the
matters in dispute and the reason(s) for
dissatisfaction and, subject to Sub-Clauses 20.7
and 20.8, no arbitration in respect of such dispute
may be commenced unless such notice is given.
If the Dispute Adjudication Board has given notice
of its decision as to a matter in dispute to the
Employer and the Contractor and no notice of
dissatisfaction has been given by either party on
or before the twenty-eighth day after the day on
which the parties received the Dispute

Adjudication Boards decision, then the Dispute

Adjudication Boards decision shall become final
and binding upon the Employer and the
Contractor.
20.5 Where notice of dissatisfaction has been
given under Sub-Clause 20.4, the parties shall
attempt to settle such dispute amicably before
the commencement of arbitration. Provided that
unless the parties agree otherwise, arbitration
may be commenced on or after the fifty-sixth day
after the day on which notice of dissatisfaction
was given, even if no attempt at amicable
settlement has been made.
20.6 Any dispute in respect of which:
(a) the decision, if any, of the Dispute
Adjudication Board has not become final
and binding pursuant to Sub-Clause 20.4,
and
(b) amicable settlement has not been
reached, shall be finally decided by
international arbitration. The arbitration
rules under which the arbitration is
conducted, the institution to nominate the
arbitrator(s)
or
to
administer
the
arbitration rules (unless named therein),
the number of arbitrators, and the
language and place of such arbitration
shall be as set out in the Appendix to
Tender. The arbitrator(s) shall have full
power to open up, review and revise any
decision of the Dispute Adjudication Board.
Neither party shall be limited, in the proceedings
before such arbitrator(s), to the evidence or
arguments previously put before the Dispute
Adjudication Board to obtain its decision.
Arbitration may be commenced prior to or after
completion of the Works. The obligations of the
parties and the Dispute Adjudication Board shall
not be altered by reason of the arbitration being
conducted during the progress of the Works.
20.7 Where neither party has given notice of
dissatisfaction within the period stated in SubClause 20.4 and the Dispute Adjudication Boards
related decision, if any, has become final and
binding, either party may, if the other party fails
to comply with such decision, and without
prejudice to any other rights it may have, refer
the failure itself to arbitration under Sub-Clause
77

20.6. The provisions of Sub-Clauses 20.4 and 20.5

shall not apply to any such reference.
20.8 When the appointment of the Dispute
Adjudication Board and of any replacement has
expired, any such dispute referred to in SubClause 20.4 shall be finally settled by arbitration
pursuant to Sub-Clause 20.6. The provisions of
Sub-Clauses 20.4 and 20.5 shall not apply to any
such reference. (Emphasis ours.)
Despite the presence of the afore-quoted
arbitration clause in the EPCC, it is respondents
position, upheld by the Court of Appeals, that the
CIAC still cannot assume jurisdiction over CIAC
Case No. 17-2005 (petitioners Request for
Arbitration) because petitioner has not yet
referred its dispute with respondent to the DAB,
as directed by Clause 20.4 of the EPCC. Prior
resort of the dispute to DAB is a condition
precedent and an indispensable requirement for
the CIAC to acquire jurisdiction over CIAC Case
No. 17-2005.21
It is true that Clause 20.4 of the EPCC states that
a dispute between petitioner and respondent as
regards the EPCC shall be initially referred to the
DAB for decision, and only when the parties are
dissatisfied with the decision of the DAB should
arbitration commence. This does not mean,
however, that the CIAC is barred from assuming
jurisdiction over the dispute if such clause was
not complied with.

nor can it be waived or diminished by the

stipulation, act or omission of the parties, as long
as the parties agreed to submit their construction
contract dispute to arbitration, or if there is an
arbitration
clause
in
the
construction
contract.26 The parties will not be precluded from
electing to submit their dispute to CIAC, because
this right has been vested in each party by law. 27
In China Chang Jiang Energy Corporation
(Philippines) v. Rosal Infrastructure Builders, 28 we
elucidated thus:
What the law merely requires for a particular
construction contract to fall within the jurisdiction
of CIAC is for the parties to agree to submit the
same to voluntary arbitration. Unlike in the
original version of Section 1, as applied in the
Tesco case, the law does not mention that the
parties should agree to submit disputes arising
from their agreement specifically to the CIAC for
the latter to acquire jurisdiction over such
disputes. Rather, it is plain and clear that as long
as the parties agree to submit to voluntary
arbitration, regardless of what forum they may
choose, their agreement will fall within the
jurisdiction of the CIAC, such that, even if they
specially choose another forum, the parties will
not be precluded from electing to submit their
dispute before the CIAC because this right has
been vested upon each party by law, i.e., E.O. No.
1008.
xxxx

Under Section 1, Article III of the CIAC Rules, an

arbitration clause in a construction contract shall
be deemed as an agreement to submit an
existing or future controversy to CIAC jurisdiction,
"notwithstanding the reference to a different
arbitration institution or arbitral body in such
contract x x x." Elementary is the rule that when
laws or rules are clear, it is incumbent on the
court to apply them. When the law (or rule) is
unambiguous and unequivocal, application, not
interpretation thereof, is imperative.22
Hence, the bare fact that the parties herein
incorporated an arbitration clause in the EPCC is
sufficient to vest the CIAC with jurisdiction over
any construction controversy or claim between
the parties.23 The arbitration clause in the
construction contract ipso facto vested the CIAC
with jurisdiction.24 This rule applies, regardless of
whether the parties specifically choose another
forum or make reference to another arbitral
body.25 Since the jurisdiction of CIAC is conferred
by law, it cannot be subjected to any condition;

Now that Section 1, Article III [CIAC Rules of

Procedure Governing Construction Arbitration], as
amended, is submitted to test in the present
petition, we rule to uphold its validity with full
certainty. However, this should not be understood
to mean that the parties may no longer stipulate
to submit their disputes to a different forum or
arbitral body. Parties may continue to stipulate as
regards their preferred forum in case of voluntary
arbitration, but in so doing, they may not divest
the CIAC of jurisdiction as provided by law. Under
the elementary principle on the law on contracts
that laws obtaining in a jurisdiction form part of
all agreements, when the law provides that the
Board acquires jurisdiction when the parties to
the contract agree to submit the same to
voluntary arbitration, the law in effect,
automatically gives the parties an alternative
forum before whom they may submit their
disputes. That alternative forum is the CIAC. This,
to the mind of the Court, is the real spirit of E.O.
78

No. 1008, as implemented by Section 1, Article III

of the CIAC Rules. (Emphases ours.)
Likewise, in National Irrigation Administration v.
Court of Appeals,29 we pronounced that:
Under the present Rules of Procedure [CIAC Rules
of Procedure Governing Construction Arbitration],
for a particular construction contract to fall within
the jurisdiction of CIAC, it is merely required that
the parties agree to submit the same to voluntary
arbitration. Unlike in the original version of
Section 1, as applied in the Tesco case, the law as
it now stands does not provide that the parties
should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter
to acquire jurisdiction over the same. Rather, it is
plain and clear that as long as the parties agree
to submit to voluntary arbitration, regardless of
what forum they may choose, their agreement
will fall within the jurisdiction of the CIAC, such
that, even if they specifically choose another
forum, the parties will not be precluded from
electing to submit their dispute before the CIAC
because this right has been vested upon each
party by law, i.e., E.O. No. 1008.
We note that this is not a case wherein the
arbitration clause in the construction contract
named another forum, not the CIAC, which shall
have jurisdiction over the dispute between the
parties; rather, the said clause requires prior
referral of the dispute to the DAB. Nonetheless,
we still hold that this condition precedent, or
more appropriately, non-compliance therewith,
should not deprive CIAC of its jurisdiction over the
dispute between the parties.
It bears to emphasize that the mere existence of
an arbitration clause in the construction contract
is considered by law as an agreement by the
parties to submit existing or future controversies
between them to CIAC jurisdiction, without any
qualification or condition precedent. To affirm a
condition precedent in the construction contract,
which would effectively suspend the jurisdiction
of the CIAC until compliance therewith, would be
in conflict with the recognized intention of the law
and rules to automatically vest CIAC with
jurisdiction over a dispute should the construction
contract contain an arbitration clause.
Moreover, the CIAC was created in recognition of
the contribution of the construction industry to
national development goals. Realizing that delays
in the resolution of construction industry disputes
would also hold up the development of the

country, Executive Order No. 1008 expressly

mandates the CIAC to expeditiously settle
construction industry disputes and, for this
purpose, vests in the CIAC original and exclusive
jurisdiction over disputes arising from, or
connected with, contracts entered into by the
parties
involved
in
construction
in
the
Philippines.30
The dispute between petitioner and respondent
has been lingering for almost five years now.
Despite numerous meetings and negotiations
between the parties, which took place prior to
petitioners filing with the CIAC of its Request for
Arbitration, no amicable settlement was reached.
A ruling requiring the parties to still appoint a
DAB, to which they should first refer their dispute
before the same could be submitted to the CIAC,
would merely be circuitous and dilatory at this
point. It would entail unnecessary delays and
expenses on both parties, which Executive Order
No. 1008 precisely seeks to prevent. It would,
indeed, defeat the purpose for which the CIAC
was created.
WHEREFORE, the Petition is hereby GRANTED.
The Decision, dated 23 May 2007, and Resolution,
dated 16 November 2007, of the Court of Appeals
in CA-G.R. SP No. 92504 are hereby REVERSED
and SET ASIDE. The instant case is hereby
REMANDED for further proceedings to the CIAC
which is DIRECTED to resolve the same with
dispatch. SO ORDERED.
13.
G.R. No. 182248
2008

December 18,

EQUITABLE
PCI
BANKING
CORPORATION,1 GEORGE L. GO, PATRICK D.
GO,
GENEVIEVE
W.J.
GO,
FERDINAND
MARTIN G. ROMUALDEZ, OSCAR P. LOPEZDEE, RENE J. BUENAVENTURA, GLORIA L.
TAN-CLIMACO, ROGELIO S. CHUA, FEDERICO
C. PASCUAL, LEOPOLDO S. VEROY, WILFRIDO
V.
VERGARA,
EDILBERTO
V.
JAVIER,
ANTHONY F. CONWAY, ROMULAD U. DY
TANG, WALTER C. WESSMER, and ANTONIO
N. COTOCO, petitioners, vs. RCBC CAPITAL
CORPORATION, respondent.
DECISION
VELASCO, JR., J.:
The Case
79

This Petition for Review on Certiorari under Rule

45 seeks the reversal of the January 8, 2008 2 and
March 17, 20083 Orders of the Regional Trial Court
(RTC), Branch 148 in Makati City in SP Proc. Case
No. 6046, entitled In the Matter of ICC Arbitration
Ref. No. 13290/MS/JB/JEM Between RCBC Capital
Corporation, (Claimant), and Equitable PCI
Banking Corporation, Inc. et al., (Respondents).
The assailed January 8, 2008 Order confirmed the
Partial
Award
dated
September
27,
20074 rendered by the International Chamber of
Commerce-International Court of Arbitration (ICCICA) in Case No. 13290/MS/JB/JEM, entitled RCBC
Capital Corporation (Philippines) v. Equitable PCI
Bank, Inc. & Others (Philippines). The March 17,
2008 Order denied petitioners motion for
reconsideration of the January 8, 2008 Order.
The Facts
On May 24, 2000, petitioners Equitable PCI Bank,
Inc. (EPCIB) and the individual shareholders of
Bankard, Inc., as sellers, and respondent RCBC
Capital Corporation (RCBC), as buyer, executed
a Share Purchase Agreement5(SPA) for the
purchase of petitioners interests in Bankard,
representing 226,460,000 shares, for the price of
PhP 1,786,769,400. To expedite the purchase,
RCBC agreed to dispense with the conduct of a
due diligence audit on the financial status of
Bankard.
Under the SPA, RCBC undertakes, on the date of
contract execution, to deposit, as downpayment,
20% of the purchase price, or PhP 357,353,880,
in an escrow account. The escrowed amount, the
SPA stated, should be released to petitioners on
an agreed-upon release date and the balance of
the purchase price shall be delivered to the share
buyers upon the fulfillment of certain conditions
agreed upon, in the form of a managers check.
The other relevant provisions of the SPA are:
Section 5. Sellers
Warranties

Representations

and

The SELLERS jointly and severally

represent and warrant to the BUYER
that:
xxxx
The Financial Condition of Bankard

g. The audited financial statements of

Bankard for the three (3) fiscal years ended
December 31, 1997, 1998 and 1999, and
the unaudited financial statements for the
first quarter ended 31 March 2000, are fair
and accurate, and complete in all material
respects, and have been prepared in
accordance
with
generally
accepted
accounting principles consistently followed
throughout the period indicated and:
i) the balance sheet of Bankard as of
31 December 1999, as prepared and
certified by SGV & Co. ("SGV"), and
the unaudited balance sheet for the
first quarter ended 31 March 2000,
present
a
fair
and
accurate
statement as of those dates, of
Bankards financial condition and of
all its assets and liabilities, and is
complete in all material respects;
and
ii) the statements of Bankards profit
and loss accounts for the fiscal years
1996 to 1999, as prepared and
certified by SGV, and the unaudited
profit and loss accounts for the first
quarter ended 31 March 2000, fairly
and accurately present the results of
the operations of Bankard for the
periods indicated, and are complete
in all material respects.
h. Except as disclosed in the Disclosures,
and except to the extent set forth or
reserved
in
the
audited
financial
statements of Bankard as of 31 December
1999
and
its
unaudited
financial
statements as of 31 March 2000, Bankard,
as of such dates and up to 31 May 2000,
had and shall have no liabilities, omissions
or mistakes in its records which will have
material adverse effect on the net worth or
financial condition of Bankard to the extent
of more than One Hundred Million Pesos
(P100,000,000.00) in the aggregate. In the
event such material adverse effect on the
net worth or financial condition of Bankard
exceeds One Hundred Million Pesos
(P100,000,000.00), the Purchase Price shall
be reduced in accordance with the
following formula:
Reduction in Purchase Price = X
multiplied by 226,460,000
80

where

X=

Amount
by
which
negative
adjustment exceeds P100 Million
-------------------------------------------338,000,000

xxxx
Section
7. Remedies
Warranties

for

Breach

of

a. If any of the representations and

warranties of any or all of the SELLERS or
the BUYER (the "Defaulting Party")
contained in Sections 5 and 6 shall be
found to be untrue when made and/or as of
the Closing Date, the other party, i.e., the
BUYER if the Defaulting Party is any or all
of the SELLERS and the SELLERS if the
Defaulting Party is the BUYER (hereinafter
referred to as the "Non-Defaulting Party")
shall have the right to require the
Defaulting Party, at the latters expense, to
cure such breach, and/or seek damages, by
providing notice or presenting a claim to
the Defaulting Party, reasonably specifying
therein the particulars of the breach. The
foregoing remedies shall be available to
the Non-Defaulting Party only if the
demand therefor is presented in writing to
the Defaulting Party within three (3) years
from the Closing Date except that the
remedy for a breach of the SELLERS
representation and warrant in Section 5 (h)
shall be available only if the demand
therefor is presented to the Defaulting
Party in writing together with schedules
and to substantiate such demand, within
six (6) months from the Closing Date.6
On June 2, 2000, RCBC deposited the stipulated
downpayment amount in an escrow account after
which it was given full management and
operational control of Bankard. June 2, 2000 is
also considered by the parties as theClosing
Date referred to in the SPA.
Thereafter, the parties executed an Amendment
to Share Purchase Agreement (ASPA) dated
September 19, 2000.7 Its paragraph 2(e) provided
that:
2. Notwithstanding any provisions to the
contrary in the Share Purchase Agreement
and/or any agreement, instrument or

document entered into or executed by the

Parties in relation thereto (the "Related
Agreements"), the Parties hereby agree
that:
xxxx
e) Notwithstanding the provisions of Sec. 7
of the Share Purchase Agreement to the
contrary, the remedy for a breach of
the SELLERS representation and
warranty in Section 5(h) of the Share
Purchase Agreement shall be available if
the demand therefor is presented to
the SELLERS in writing together with
schedules and data to substantiate such
demand, on or before 31 December
2000. (Emphasis added.)

Sometime in September 2000, RCBC had

Bankards accounts audited, creating for the
purpose an audit team led by a certain Rubio, the
Vice-President for Finance of RCBC at the time.
Rubios conclusion was that the warranty, as
contained in Section 5(h) of the SPA (simply Sec.
5[h] hereinafter), was correct.
On December 28, 2000, RCBC paid the balance of
the contract price. The corresponding deeds of
sale for the shares in question were executed in
January 2001.
Thereafter, in a letter of May 5, 2003, RCBC
informed petitioners of its having overpaid the
purchase price of the subject shares, claiming
that there was an overstatement of valuation of
accounts amounting to PhP 478 million, resulting
in the overpayment of over PhP 616 million. Thus,
RCBC claimed that petitioners violated their
warranty, as sellers, embodied in Sec. 5(g) of the
SPA (Sec. 5[g] hereinafter).
Following unsuccessful attempts at settlement,
RCBC, in accordance with Sec. 10 of the SPA, filed
a Request
for
Arbitration dated
May
12,
20048 with the ICC-ICA. In the request, RCBC
charged
Bankard
with
deviating
from,
contravening and not following generally
accepted accounting principles and practices in
maintaining their books. Due to these improper
accounting practices, RCBC alleged that both the
audited and unaudited financial statements of
Bankard prior to the stock purchase were far from
fair and accurate and, hence, violated the
representations and warranties of petitioners in
the SPA. Per RCBC, its overpayment amounted to
PhP 556 million. It thus prayed for the rescission
81

of the SPA, restitution of the purchase price,

payment of actual damages in the amount of PhP
573,132,110, legal interest on the purchase price
until actual restitution, moral damages, and
litigation and attorneys fees. As alternative to
rescission and restitution, RCBC prayed for
damages in the amount of at least PhP
809,796,092 plus legal interest.
To the Request for Arbitration, petitioners filed an
Answer dated July 28, 2004,9 denying RCBCs
inculpatory averments and setting up the
following affirmative allegations: the period for
filing of the asserted claim had already lapsed by
force of Sec. 7 of the SPA; RCBC is not entitled to
rescission having had ample opportunity and
reasonable time to file a claim against
petitioners; RCBC is not entitled to its alternative
prayer of damages, being guilty of laches and
failing to set out the details of the breach as
required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the
formation of the arbitration tribunal consisting of
retired Justice Santiago M. Kapunan, nominated
by petitioners; Neil Kaplan, RCBCs nominee; and
Sir Ian Barker, appointed by the ICC-ICA.
After drawn out proceedings with each party
alleging deviation and non-compliance by the
other with arbitration rules, the tribunal, with
Justice Kapunan dissenting, rendered a Partial
Award
dated
September
27,
2007,10 the
dispositive portion of which states:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following
declarations by way of Partial Award:
(a) The Claimants claim is not time-barred
under the provisions of this SPA.
(b) The Claimant is not estopped by its
conduct or the equitable doctrine of laches
from pursuing its claim.
(c) As detailed in the Partial Award, the
Claimant has established the following
breaches by the Respondents of clause
5(g) of the SPA:
i) the assets, revenue and net worth
of Bankard were overstated by
reason of its policy on and
recognition of Late Payment Fees;

ii) reported receivables were higher

than their realizable values by
reason of the bucketing method,
thus overstating Bankards assets;
and
iii) the relevant Bankard statements
were inadequate and misleading in
that their disclosures caused readers
to be misinformed about Bankards
accounting policies on revenue and
receivables.
(d) Subject to proof of loss the Claimant is
entitled to damages for the foregoing
breaches.
(e) The Claimant is
rescission of the SPA.

not

entitled

to

(f) All other issues, including any issue

relating to costs, will be dealt with in a
further or final award.
15.2 A further Procedural Order will be
necessary subsequent to the delivery of
this Partial Award to deal with the
determination
of
quantum
and
in
particular, whether there should be an
Expert appointed by the Tribunal under
Article 20(4) of the ICC Rules to assist the
Tribunal in this regard.
15.3 This Award is delivered by a majority
of the Tribunal (Sir Ian Barker and Mr.
Kaplan). Justice Kapunan is unable to agree
with the majoritys conclusion on the claim
of estoppel brought by the respondents.
On the matter of prescription, the tribunal held
that RCBCs claim is not time-barred, the claim
properly falling under the contemplation of Sec.
5(g) and not Sec. 5(h). As such, the tribunal
concluded, RCBCs claim was filed within the
three (3)-year period under Sec. 5(g) and that the
six (6)-month period under Sec. 5(h) did not
apply.
The tribunal also exonerated RCBC from laches,
the latter having sought relief within the three
(3)-year period prescribed in the SPA. On the
matter of estoppel suggested in petitioners
answer, the tribunal stated in par. 10.27 of the
Partial Award the following:

82

10.27 Clearly, there has to be both an

admission or representation by (in this
case) the Claimant [RCBC], plus reliance
upon it by (in this case) the Respondents
[herein petitioners]. The Tribunal cannot
find
as
proved
any
admission/representation that the Claimant
was abandoning a 5(g) claim, any reliance
by the Respondents on an admission, and
any detriment to the Respondents such as
would entitle them to have the Claimant
deprived of the benefit of clause 5(g).
These aspects of the claim for estoppels
are rejected.11
Notably, the tribunal considered the rescission of
the SPA and ASPA as impracticable and "totally
out of the question."12
In his Dissenting Opinion13 which he submitted to
and which was received on September 24, 2007
by the ICC-ICA, Justice Kapunan stated the
observation that RCBCs claim is time-barred,
falling as such claim did under Sec. 5(h), which
prescribes a comparatively shorter prescriptive
period, not 5(g) as held by the majority of the
tribunal, to wit:
Claimant admits that the Claim is for
recovery of P431 million on account of
alleged "overvaluation of the net worth of
Bankard,"
allegedly
for
"improper
accounting practices" resulting in "its book
value per share as of 31 December 1999
[being] overstated." Claimants witness,
Dean Echanis asserts that "the inadequate
provisioning
for
Bankards
doubtful
accounts result[ed] in an overstatement of
its December 31, 1999 total assets and net
worth of by [sic] least P418.2 million."
In addition, Claimants demand letter
addressed to the Respondents alleged that
"we overpaid for the Shares to the extent
of the impact of the said overstatement on
the Book Value per share".
These circumstances establish beyond
dispute that the Claim is based on the
alleged overstatement of the 1999 net
worth of Bankard, which the parties relied
on in setting the purchase price of the
shares. Moreover, it is clear that there was
an overstatement because of "improper
accounting practices" which led Claimant
to overpay for the shares.

Ultimately, the Claim is one for recovery of

overpayment in the purchase price of the
shares. x x x
As to the issue of estoppel, Justice Kapunan
stated:
Moreover, Mr. Rubios findings merely
corroborated the disclosures made in the
Information Memorandum that Claimant
received from the Respondents prior to the
execution of the SPA. In this connection, I
note that Bankards policy on provisioning
and setting of allowances using the
Bucketed Method and income recognition
from AR/Principal, AR/Interest and AR/LPFs
were
disclosed
in
the
Information
Memorandum.
Thus,
these
alleged
improper accounting practices were known
to the Claimant even prior to the execution
of the SPA.
Thus, when Claimant paid the balance of
the purchase price, it did so with full
knowledge of these accounting practices of
Bankard that it now assails. By paying the
balance of the purchase price without
taking exception or objecting to the
accounting practices disclosed through Mr.
Rubio s review and the Information
Memorandum, Claimant is deemed to have
accepted such practices as correctly
reporting the 1999 net worth. x x x
xxxx
As last point, I note that my colleagues
invoke a principle that for estoppels to
apply there must be positive indication
that the right to sue was waived. I am of
the view that there is no such principle
under Philippine law. What is applicable is
the holding in Knecht and in CocaCola that
prior
knowledge
of
an
unfavorable fact is binding on the party
who has such knowledge; "when the
purchaser proceeds to make investigations
by himself, and the vendor does nothing to
prevent such investigation from being as
complete as the former might wish, the
purchaser cannot later allege that the
vendor made false representations to him"
(Cf. Songco v. Sellner, 37 Phil 254 citations
omitted).
Applied to this case, the Claimant cannot
seek relief on the basis that when it paid
83

the purchase price in December 2000, it

was unaware that the accounting practices
that went into the reporting of the 1999
net worth as amounting to P1,387,275,847
were not in conformity with GAAP
[generally accepted accounting principles].
(Emphasis added.)

affecting the value of the shares they sold,

notwithstanding that the respondent-buyer
knew before contracting that the accounts
were kept in the manner complained of,
and in fact ratified and adopted the
questioned
accounting
practice
and
14
policies.

On October 26, 2007, RCBC filed with the RTC a

Motion to Confirm Partial Award. On the same
day, petitioners countered with a Motion to
Vacate the Partial Award. On November 9, 2007,
petitioners again filed a Motion to Suspend and
Inhibit Barker and Kaplan.

The Courts Ruling

On January 8, 2008, the RTC issued the first

assailed order confirming the Partial Award and
denying the adverted separate motions to vacate
and to suspend and inhibit. From this order,
petitioners sought reconsideration, but their
motion was denied by the RTC in the equally
assailed second order of March 17, 2008.

As earlier recited, the ICC-ICAs Partial Award

dated September 27, 2007 was confirmed by the
RTC in its first assailed order of January 8, 2008.
Thereafter, the RTC, by order of March 17, 2008,
denied petitioners motion for reconsideration.
Therefrom, petitioners came directly to this Court
on a petition for review under Rule 45 of the
Rules of Court.

From the assailed orders, petitioners came

directly to this Court through this petition for
review.
The Issues
This petition seeks the review, reversal and
setting aside of the orders Annexes A and
B and, in lieu of them, it seeks judgment
vacating the arbitrators liability award,
Annex C, on these grounds:
(a) The trial court acted contrary to law
and judicial authority in refusing to vacate
the arbitral award, notwithstanding it was
rendered in plain disregard of the parties
contract and applicable Philippine law,
under which the claim in arbitration was
indubitably time-barred.
(b) The trial court acted contrary to law
and judicial authority in refusing to vacate
and in confirming the arbitral award,
notwithstanding that the arbitrators had
plainly and admittedly failed to accord
petitioners due process by denying them a
hearing on the basic factual matter upon
which their liability is predicated.
(c) The trial court committed grave error in
confirming the arbitrators award, which
held petitioners-sellers liable for an alleged
improper recording of accounts, allegedly

The petition must be denied.

On Procedural Misstep of Direct Appeal to
This Court

This is a procedural miscue for petitioners who

erroneously bypassed the Court of Appeals (CA)
in pursuit of its appeal. While this procedural
gaffe has not been raised by RCBC, still we would
be remiss in not pointing out the proper mode of
appeal from a decision of the RTC confirming,
vacating, setting aside, modifying, or correcting
an arbitral award.
Rule 45 is not the remedy available to petitioners
as the proper mode of appeal assailing the
decision of the RTC confirming as arbitral award is
an appeal before the CA pursuant to Sec. 46 of
Republic Act No. (RA) 9285, otherwise known as
the Alternative Dispute Resolution Act of 2004, or
completely, An Act to Institutionalize the Use of
an Alternative Dispute Resolution System in the
Philippines and to Establish the Office for
Alternative Dispute Resolution, and for other
Purposes, promulgated on April 2, 2004 and
became effective on April 28, 2004 after its
publication on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we
explained, inter alia, that the RTC decision of an
assailed arbitral award is appealable to the CA
and may further be appealed to this Court, thus:
Sec. 46 of RA 9285 provides for an appeal
before the CA as the remedy of an
aggrieved party in cases where the RTC
84

sets aside, rejects, vacates, modifies, or

corrects an arbitral award, thus:

established the parameters by which an arbitral

award may be set aside, to wit:

SEC. 46. Appeal from Court Decision or

Arbitral Awards.A decision of the Regional
Trial Court confirming, vacating, setting
aside, modifying or correcting an arbitral
award may be appealed to the Court of
Appealsin accordance with the rules and
procedure to be promulgated by the
Supreme Court.

As a rule, the award of an arbitrator

cannot be set aside for mere errors of
judgment either as to the law or as to
the facts. Courts are without power to
amend or overrule merely because of
disagreement with matters of law or
facts determined by the arbitrators.
They will not review the findings of
law and fact contained in an award,
and will not undertake to substitute
their judgment for that of the
arbitrators, since any other rule would
make an award the commencement,
not the end, of litigation. Errors of law
and fact, or an erroneous decision of
matters submitted to the judgment of
the arbitrators, are insufficient to
invalidate
an
award
fairly
and
honestly made. Judicial review of an
arbitration is, thus, more limited than
judicial review of a trial.

The losing party who appeals from the

judgment of the court confirming an
arbitral award shall be required by the
appellate court to post a counterbond
executed in favor of the prevailing party
equal to the amount of the award in
accordance
with
the
rules
to
be
promulgated by the Supreme Court.
Thereafter, the CA decision may further be
appealed or reviewed before this Court
through a petition for review under Rule 45
of the Rules of Court.15
It is clear from the factual antecedents that RA
9285 applies to the instant case. This law was
already effective at the time the arbitral
proceedings were commenced by RCBC through a
request for arbitration filed before the ICC-ICA on
May 12, 2004. Besides, the assailed confirmation
order of the RTC was issued on March 17, 2008.
Thus, petitioners clearly took the wrong mode of
appeal and the instant petition can be outright
rejected and dismissed.
Even if we entertain the petition, the outcome will
be the same.
The Court Will Not Overturn an Arbitral
Award
Unless It Was Made in Manifest Disregard of
the Law
In Asset
Privatization
Trust
v.
Court
of
Appeals,16 the Court passed on similar issues as
the ones tendered in the instant petition. In that
case, the arbitration committee issued an arbitral
award which the trial court, upon due
proceedings, confirmed despite the opposition of
the losing party. Motions for reconsideration by
the losing party were denied. An appeal
interposed by the losing party to the CA was
denied due course. On appeal to this Court, we

Nonetheless, the arbitrators awards is not

absolute and without exceptions. The
arbitrators cannot resolve issues beyond
the scope of the submission agreement.
The parties to such an agreement are
bound by the arbitrators award only to the
extent and in the manner prescribed by the
contract and only if the award is rendered
in conformity thereto. Thus, Sections 24
and 25 of the Arbitration Law provide
grounds for vacating, rescinding or
modifying an arbitration award. Where the
conditions described in Articles 2038, 2039
and 2040 of the Civil Code applicable to
compromises
and
arbitration
are
attendant, the arbitration award may also
be annulled.
xxxx
Finally, it should be stressed that while a
court is precluded from overturning an
award for errors in determination of factual
issues, nevertheless, if an examination of
the record reveals no support whatever for
the arbitrators determinations, their award
must be vacated. In the same manner, an
award must be vacated if it was made
in
"manifest
disregard
of
the
law."17 (Emphasis supplied.)

85

Following Asset Privatization Trust, errors in law

and fact would not generally justify the reversal
of an arbitral award. A party asking for the
vacation of an arbitral award must show that any
of the grounds for vacating, rescinding, or
modifying an award are present or that the
arbitral award was made in manifest disregard of
the law. Otherwise, the Court is duty-bound to
uphold an arbitral award.
The instant petition dwells on the alleged
manifest disregard of the law by the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Jaros18 expounded on the phrase
"manifest disregard of the law" in the following
wise:
This court has emphasized that manifest
disregard of the law is a very narrow
standard of review. Anaconda Co. v.
District Lodge No. 27, 693 F.2d 35
(6th Cir.1982). A mere error in interpretation
or
application
of
the
law
is
insufficient. Anaconda, 693 F.2d at 37-38.
Rather, the decision must fly in the face of
clearly established legal precedent. When
faced with questions of law, an arbitration
panel does not act in manifest disregard of
the law unless (1) the applicable legal
principle is clearly defined and not subject
to reasonable debate; and (2) the
arbitrators refused to heed that legal
principle.
Thus, to justify the vacation of an arbitral award
on account of "manifest disregard of the law," the
arbiters findings must clearly and unequivocally
violate an established legal precedent. Anything
less would not suffice.
In the present case, petitioners, in a bid to
establish that the arbitral award was issued in
manifest disregard of the law, allege that the
Partial
Award
violated
the
principles of
prescription, due process, and estoppel. A review
of petitioners arguments would, however, show
that their arguments are bereft of merit. Thus,
the Partial Award dated September 27, 2007
cannot be vacated.
RCBCs Claim Is Not Time-Barred
Petitioners argue that RCBCs claim under Sec.
5(g) is based on overvaluation of Bankards
revenues, assets, and net worth, hence, for price

reduction falling under Sec. 5(h), in which case it

was belatedly filed, for RCBC presented the claim
to petitioners on May 5, 2003, when the period
for presenting it under Sec. 5(h) expired on
December 31, 2000. As a counterpoint, RCBC
asserts that its claim clearly comes under Sec.
5(g) in relation to Sec. 7 which thus gave it three
(3) years from the closing date of June 2, 2000, or
until June 1, 2003, within which to make its claim.
RCBC contends having acted within the required
period, having presented its claim-demand on
May 5, 2003.
To make clear the issue at hand, we highlight the
pertinent portions of Secs. 5(g), 5(h), and 7
bearing on what petitioners warranted relative to
the financial condition of Bankard and the
remedies available to RCBC in case of breach of
warranty:
g. The audited financial statements of
Bankard for the three (3) fiscal years
ended December 31, 1997, 1998 and
1999, and the unaudited financial
statements for the first quarter ended
31 March 2000, are fair and accurate,
and complete in all material respects,
and have been prepared in accordance
with generally accepted accounting
principles consistently
followed
throughout the period indicated and:
i) the balance sheet of Bankard
as of 31 December 1999, as
prepared and certified by SGV & Co.
("SGV"), and the unaudited balance
sheet for the first quarter ended 31
March 2000, present a fair and
accurate statement as of those
dates, of Bankards financial
condition and of all its assets
and liabilities, and is complete
in all material respects; and
ii) the statements of Bankards
profit and loss accounts for the
fiscal years 1996 to 1999, as
prepared and certified by SGV, and
the unaudited profit and loss
accounts for the first quarter
ended 31 March 2000, fairly and
accurately present the results of
the operations of Bankard for the
periods
indicated,
and are
complete
in
all
material
respects.
86

h. Except as disclosed in the Disclosures,

and except to the extent set forth or
reserved
in
the
audited
financial
statements of Bankard as of 31 December
1999
and
its
unaudited
financial
statements for the first quarter ended 31
March 2000, Bankard, as of such dates
and up to 31 May 2000, had and shall
have no liabilities, omissions or
mistakes in its records which will have
a material adverse effect on the net
worth
or
financial
condition
of
Bankard to the extent of more than
One
Hundred
Million
Pesos
(P
100,000,000.00) in the aggregate. In
the event such material adverse effect on
the net worth or financial condition of
Bankard exceeds One Hundred Million
Pesos (P 100,000,000.00), the Purchase
Price shall be reduced in accordance with
the following formula:
xxxx
Section 7. Remedies
Warranties

for

Breach

of

If any of the representations and

warranties of any or all of the SELLERS or
the BUYER (the "Defaulting Party")
contained in Sections 5 and 6 shall be
found to be untrue when made and/or as of
the Closing Date, the other party, i.e., the
BUYER if the Defaulting is any of the
SELLERS and the SELLERS if the Defaulting
Party is the BUYER (hereinafter referred to
as the "Non-Defaulting Party") shall have
the right to require the Defaulting
Party, at the latters expense, to cure
such breach, and/or seek damages, by
providing notice or presenting a claim
to the Defaulting Party, reasonably
specifying therein the particulars of the
breach. The foregoing remedies shall be
available to the Non-Defaulting Party
only if
the
demand
therefor
is
presented in writing to the Defaulting
Party within three (3) years from the
Closing Date, except that the remedy
for
a
breach
of the
SELLERS
representation
and
warranty
in
Section 5 (h) shall be available only if
the demand therefor is presented to
the Defaulting Party in writing together
with schedules and data to substantiate
such demand, within six (6) months

from the
supplied.)

Closing

Date.

(Emphasis

Before we address the issue put forward by

petitioners, there is a necessity to determine the
nature and application of the reliefs provided
under Sec. 5(g) and Sec. 5(h) in conjunction with
Sec. 7, thus:
(1) The relief under Sec. 5(h) is specifically for
price reduction as said section explicitly states
that the "Purchase Price shall be reduced in
accordance with the following formula x x x." In
addition, Sec. 7 gives the aggrieved party the
right to ask damages based on the stipulation
that the non-defaulting party "shall have the right
to require the Defaulting Party, at the latters
expense, to cure such breach and/or seek
damages."
On the other hand, the remedy under Sec. 5(g) in
conjunction with Sec. 7 can include specific
performance,
damages,
and
other
reliefs excluding price reduction.
(2) Sec. 5(g) warranty covers the audited
financial statements (AFS) for the three (3) years
ending December 31, 1997 to 1999 and the
unaudited financial statements (UFS) for the first
quarter ending March 31, 2000. On the other
hand, the Sec. 5(h) warranty refers only to the
AFS for the year ending December 31, 1999 and
the UFS up to May 31, 2000. It is undenied that
Sec. 5(h) refers to price reduction as it covers
"only the most up-to-date audited and unaudited
financial statements upon which the price must
have been based."19
(3) Under Sec. 5(h), the responsibility of
petitioners for its warranty shall exclude the
disclosures and reservations made in AFS of
Bankard as of December 31, 1999 and its UFS up
to May 31, 2000. No such exclusions were made
under Sec. 5(g) with respect to the warranty of
petitioners in the AFS and UFS of Bankard.
(4) Sec. 5(h) gives relief only if there is material
adverse effect in the net worth in excess of PhP
100 million and it provides a formula for price
reduction.20 On the other hand, Sec. 5(g) can be
the basis for remedies like specific performance,
damages, and other reliefs, except price
reduction, even if the overvaluation is less or
above PhP 100 million and there is no formula for
computation of damages.
87

(5) Under Sec. 7, the aggrieved party shall

present its written demand to the defaulting
party within three (3) years from closing date.
Under Sec. 5(h), the written demand shall be
presented within six (6) months from closing
date. In accordance with par. 2(c) of the ASPA,
the deadline to file the demand under Sec. 5(h)
was extended to December 31, 2000.
From the above determination, it becomes clear
that the aggrieved party is entitled to two (2)
separate alternative remedies under Secs. 5 and
7 of the SPA, thus:
1. A claim for price reduction under Sec.
5(h) and/or damages based on the breach
of warranty by Bankard on the absence of
liabilities, omissions and mistakes on the
financial statements as of 31 December
1999 and the UFS as of 31 May 2000,
provided that the material adverse effect
on the net worth exceeds PhP 100M and
the written demand is presented within six
(6) months from closing date (extended to
31 December 2000); and
2. An action to cure the breach like specific
performance and/or damages under Sec.
5(g) based on Bankards breach of
warranty involving its AFS for the three (3)
fiscal years ending 31 December 1997,
1998, and 1999 and the UFS for the first
quarter ending 31 March 2000 provided
that the written demand shall be presented
within three (3) years from closing date.
Has RCBC the option to choose between Sec. 5(g)
or Sec. 5(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear
that it is discretionary on the aggrieved parties to
avail themselves of any remedy mentioned
above. They may choose one and dispense with
the other. Of course, the relief for price reduction
under Sec. 5(h) will have to conform to the
prerequisites and time frame of six (6) months;
otherwise, it is waived.
Preliminarily, petitioners basic posture that
RCBCs claim is for the recovery of overpayment
is specious. The records show that in its Request
for Arbitration dated May 12, 2004, RCBC prayed
for the rescission of the SPA, restitution of the
whole purchase price, and damages not for
reduction of price or for the return of any
overpayment. Even in its May 5, 2000
letter,21 RCBC did not ask for the recovery of any

overpayment or reduction of price, merely stating

in it that the accounts of Bankard, as reflected in
its AFS for 1999, were overstated which,
necessarily, resulted in an overpayment situation.
RCBC was emphatic and unequivocal that
petitioners violated their warranty covered by
Sec. 5(g) of the SPA.
It is thus evident that RCBC did not avail itself of
the option under Sec. 5(h), i.e., for price
reduction or the return of any overpayment
arising from the overvaluation of Bankards
financial condition. Clearly, RCBC invoked Sec.
5(g) to claim damages from petitioners which is
one of the alternative reliefs granted under Sec. 7
in addition to rescission and restitution of
purchase price.
Petitioners do not deny that RCBC formally filed
its claim under Sec. 5(g) which is anchored on the
material overstatement or overvaluation of
Bankards revenues, assets, and net worth and,
hence, the overstatement of the purchase price.
They, however, assert that such claim for
overpayment is actually a claim under Sec. 5(h)
of the SPA for price reduction which it forfeited
after December 31, 2000.
We cannot sustain petitioners position.
It cannot be disputed that an overstatement or
overvaluation of Bankards financial condition as
of
closing
date
translates
into
a
misrepresentation not only of the accuracy and
truthfulness of the financial statements under
Sec. 5(g), but also as to Bankards actual net
worth mentioned in Sec. 5(h). Overvaluation
presupposes mistakes in the entries in the
financial statements and amounts to a breach of
petitioners representations and warranties under
Sec. 5. Consequently, such error in the financial
statements would impact on the figure
representing the net worth of Bankard as of
closing date. An overvaluation means that the
financial condition of Bankard as of closing date,
i.e., June 2, 2000, is overstated, a situation that
will definitely result in a breach of EPCIBs
representations and warranties.
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to
Sec. 7 of the SPA would indicate the following
remedies available to RCBC should it be
discovered, as of closing date, that there is
overvaluation which will constitute breach of the
warranty clause under either Sec. 5(g) or (h), to
wit:
88

(1) An overvaluation of Bankards actual financial

condition as of closing date taints the veracity
and accuracy of the AFS for 1997, 1998, and
1999 and the UFS for the first quarter of 2000
and is an actionable breach of petitioners
warranties under Sec. 5(g).
(2) An overvaluation of Bankards financial
condition as of May 31, 2000, encompassing the
warranted financial condition as of December 31,
1999 through the AFS for 1999 and as of March
31, 2000 through the UFS for the first quarter of
2000, is a breach of petitioners representations
and warranties under Sec. 5(h).
Thus, RCBC has two distinct alternative remedies
in case of an overvaluation of Bankards financial
condition. It may invoke Sec. 5(h) when the
conditions
of
the
threshold
aggregate
overvaluation and the claim made within the sixmonth time-bar are present. In the alternative, it
may invoke Sec. 5(g) when it finds that a claim
for "curing the breach" and/or damages will be
more advantageous to its interests provided it is
filed within three (3) years from closing date.
Since it has two remedies, RCBC may opt to
exercise either one. Of course, the exercise of
either one will preclude the other.
Moreover, the language employed in Sec. 5(g)
and Sec. 5(h) is clear and bereft of any ambiguity.
The SPAs stipulations reveal that the non-use or
waiver of Sec. 5(h) does not preclude RCBC from
availing itself of the second relief under Sec. 5(g).
Article 1370 of the Civil Code is explicit that "if
terms of a contract are clear and leave no doubt
upon the intention of the contracting parties the
literal meaning of its stipulations shall control."
Since the terms of a contract have the force of
law between the parties,22 then the parties must
respect and strictly conform to it. Lastly, it is a
long held cardinal rule that when the terms of an
agreement are reduced to writing, it is deemed to
contain all the terms agreed upon and no
evidence of such terms can be admitted other
than the contents of the agreement itself.23 Since
the SPA is unambiguous, and petitioners failed to
adduce evidence to the contrary, then they are
legally bound to comply with it.
Petitioners agreed ultimately to the stipulation
that:
Each of the representations and warranties
of the SELLERS is deemed to be
a separate
representation
and
warranty, and the BUYER has placed

complete reliance thereon in agreeing to

the Purchase Price and in entering into this
Agreement. The representations and
warranties of the SELLERS shall be correct
as of the date of this Agreement and as of
the Closing Date with the same force and
effect as though such representations and
warranties had been made as of the
Closing Date.24 (Emphasis supplied.)
The Court sustains the finding in the Partial Award
that Sec. 5(g) of the SPA is a free standing
warranty and not constricted by Sec. 5(h) of the
said agreement.
Upon the foregoing premises and in the light of
the undisputed facts on record, RCBCs claim for
rescission of the SPA and damages due to
overvaluation of Bankards accounts was properly
for a breach of the warranty under Sec. 5(g) and
was not time-barred. To repeat, RCBC presented
its written claim on May 5, 2003, or a little less
than a month before closing date, well within the
three (3)-year prescriptive period provided under
Sec. 7 for the exercise of the right provided under
Sec. 5(g).
Petitioners bemoan the fact that "the arbitrators
liability award (a) disregarded the 6-month
contractual limitation for RCBCs overprice
claim, and [b] substituted in its place the 3-year
limitation
under
the
contract
for
other
claims,"25adopting
in
that
regard
the
interpretation of the SPA made by arbitral tribunal
member, retired Justice Kapunan, in his
Dissenting Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of
overpayment in the purchase price of the
shares. And it is in this context, that I
respectfully submit that Section 5(h) and
not Section 5(g), applies to the present
controversy.26
xxxx
True, without Section 5(h), the Claim for
price recovery would fall under Section
5(g). The recovery of the pecuniary loss of
the Claimant in the form of the excess
price paid would be in the nature of a claim
for
actual
damages
by
way
of
compensation. In that situation, all the
accounts in the 1999 financial statements
would be the subject of the warranty in
Section 5(g).
89

However, since the parties explicitly

included Section 5(h) in their SPA, which
assures the Claimant that there were no
"omissions or mistakes in the records" that
would misstate the 1999 net worth
account, I am left with no other
conclusion but that the accuracy of
the net worth was the subject of the
warranty in Section 5(h), while the
accuracy or correctness of the other
accounts that did not bear on, or
affect Bankards net worth, were
guaranteed by Section 5(g).
xxxx
This manner of reconciling the two
provisions is consistent with the principle in
Rule 130, Section 12 of the Rules of Court
that "when a general and a particular
provision are inconsistent, the latter is
paramount to the former [so] a particular
intent will control a general one that is
inconsistent with it." This is also consistent
with existing doctrines on statutory
construction, the application of which is
illustrated in the case of Commissioner of
Customs vs. Court of Tax Appeals, GR No.
L-41861, dated March 23, 1987 x x x.
xxxx
The Claim is for recovery of the excess
price by way of actual damages.27 x x x
(Emphasis supplied.)
Justice Kapunan noted that without Sec. 5(h),
RCBCs claim would fall under Sec. 5(g), impliedly
admitting that both provisions could very well
cover RCBCs claim, except that Sec. 5(h)
excludes the situation contemplated in it from the
general terms of Sec. 5(g).
Such view is incorrect.
While it is true that Sec. 5(h), as couched, is a
warranty on the accuracy of the Bankards net
worth while Sec. 5(g), as also couched, is a
warranty on the veracity, accuracy, and
completeness of the AFS in all material respects
as prepared in accordance with generally
accepted accounting principles consistently
followed throughout the period audited, yet both
warranties boil down to the same thing and stem
from the same accounts as summarized in the
AFS. Since the net worth is the balance of

Bankards assets less its liabilities, it

necessarily includes all the accounts under
the AFS. In short, there are no accounts in
the AFS that do not bear on the net worth
of Bankard. Moreover, as earlier elucidated, any
overvaluation of Bankards net worth is
necessarily a misrepresentation of the veracity,
accuracy, and completeness of the AFS and also
a breach of the warranty under Sec. 5(g). Thus,
the subject of the warranty in Sec. 5(h) is also
covered by the warranty in Sec. 5(g), and Sec.
5(h) cannot exclude such breach from the ambit
of Sec. 5(g). There is no need to rely on Sec. 12,
Rule 130 of the Rules of Court for both Sec. 5(g)
and Sec. 5(h) as alternative remedies are of equal
footing and one need not categorize one section
as a general provision and the other a particular
provision.
More importantly, a scrutiny of the four corners of
the SPA does not explicitly reveal any stipulation
nor even impliedly that the parties intended to
limit the scope of the warranty in Sec. 5(g) or
gave priority to Sec. 5(h) over Sec. 5(g).
The arbitral tribunal did not find any legal basis in
the SPA that Sec. 5(h) "somehow cuts down" the
scope of Sec. 5(g), thus:
9.10 In the opinion of the Tribunal, there is
nothing in the wording used in the
SPA to give priority to one warranty
over the other. There is nothing in the
wording used to indicate that the
parties intended to limit the scope of
the warranty in 5(g). If it be contended
that, on a true construction of the two
warranties, 5(h) somehow cuts down the
scope of 5(g), the Tribunal can find no
justification for such conclusion on the
wording used. Furthermore, the Tribunal
is of the view that very clear words would
be needed to cut down the scope of the
5(g) warranty.28
The Court upholds the conclusion of the tribunal
and rules that the claim of RCBC under Sec. 5(g)
is not time-barred.
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating
summaries of the accounts of Bankard which "in
turn were used by its experts to conclude that
Bankard improperly recorded its receivables and
committed material deviations from GAAP
requirements."29 Later, petitioners would assert
90

that "the arbitrators partial award admitted and

used the Summaries as evidence, and held on the
basis of the information contained in them that
petitioners were in breach of their warranty in
GAAP compliance."
To petitioners, the ICC-ICAs use of such
summaries but without presenting the source
documents violates their right to due process.
Pressing the point, petitioners had moved, but to
no avail, for the exclusion of the said summaries.
Petitioners allege that they had reserved the right
to cross-examine the witnesses of RCBC who
testified on the summaries, pending the
resolution of their motion to exclude. But,
according to them, they were effectively denied
the right to cross-examine RCBCs witnesses
when the ICC-ICA admitted the summaries of
RCBC as evidence.
Petitioners position is bereft of merit.
Anent the use but non-presentation of the source
documents as the jumping board for a claim of
denial of due process, petitioners cite Compania
Maritima v. Allied Free Workers Union.30 It may
be stated, however, that such case is not on all
fours with the instant case and, therefore, cannot
be applied here considering that it does not
involve an administrative body exercising quasijudicial function but rather the regular court.
In a catena of cases, we have ruled that "[t]he
essence of due process is the opportunity to be
heard. What the law prohibits is not the absence
of previous notice but the absolute absence
thereof and the lack of opportunity to be heard." 31
We also explained in Lastimoso v. Asayo that
"[d]ue process in an administrative context does
not require trial type proceedings similar to those
in courts of justice. Where an opportunity to be
heard either through oral arguments or through
pleadings is accorded, there is no denial of
procedural due process." 32
Were petitioners afforded the opportunity to
refute the summaries and pieces of evidence
submitted by RCBC which became the bases of
the experts opinion?
The answer is in the affirmative.
We recall the events that culminated in the
issuance of the challenged Partial Award, thus:

On May 17, 2004, the ICC-ICA received

the Request for Arbitration dated May 12, 2004
from RCBC seeking rescission of the SPA and
restitution of all the amounts paid by RCBC to
petitioners, with actual and moral damages,
interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to
the Request for Arbitration dated July 28, 2004,
setting up a counterclaim for USD 300,000 for
actual and exemplary damages.
RCBC filed its Reply33 dated August 31, 2004 to
petitioners Answer to the Request for Arbitration.
On October 4, 2004, the parties entered into the
Terms of Reference.34 At the same time, the
chairperson of the arbitral tribunal issued a
provisional timetable35 for the arbitration.
On October 25, 2004, as previously agreed upon
in the meeting on October 4, 2004, petitioners
filed a Motion to Dismiss 36 while RCBC filed a
"Claimants Position Paper (Re: [Petitioners]
Assertion that RCBC CAPITAL CORPORATIONs
Present Claim Is Time Barred)." 37
Then, the tribunal issued Procedural Order No. 1
dated January 12, 2005,38 denying the motion to
dismiss and setting the initial hearing of the case
on April 11, 2005.
In a letter dated February 9, 2005, 39 petitioners
requested that the tribunal direct RCBC to
produce certain documents. At the same time,
petitioners sought the postponement of the
hearing on April 11, 2005 to March 21, 2005, in
light of their own request.
On February 11, 2005, petitioners received
RCBCs brief of evidence and supporting
documentation in accordance with the provisional
timetable.40 In the brief of evidence, RCBC
provided summaries of the accounts of Bankard,
which petitioners now question.
Later,
in
a
letter
dated
February
14,
2005,41 petitioners complained to the tribunal
with regard to their lack of access to RCBCs
external auditor. Petitioners sought an audit by an
accounting firm of the records of Bankard with
respect to the claims of RCBC. By virtue of such
requests, petitioners also sought a rescheduling
of the provisional timetable, despite their earlier
assurance to the tribunal that if they received the
documents that they requested on February 9,
91

2005 on or before February 21, 2005, they would

abide by the provisional timetable.
Thereafter, the tribunal issued Procedural Order
No. 2 dated February 18, 2005,42 in which it
allowed the discovery and inspection of the
documents requested by petitioners that were
also scheduled on February 18, 2005. The request
for an audit of Bankards accounts was denied
without prejudice to the conduct of such audit
during the course of the hearings. Consequently,
the tribunal amended the provisional timetable,
extending the deadline for petitioners to file their
brief of evidence and documents to March 21,
2005. The date of the initial hearing, however,
remained on April 11, 2005.
On February 18, 2005, petitioners were furnished
the documents that they requested RCBC. 43 The
parties also agreed to meet again on February 23,
2005 to provide petitioners with a "walk-through"
of Bankards Statistical Analysis System and to
provide petitioners with a soft copy of all of
Bankards cardholders.44
During the February 23, 2005 meeting, EPCIBs
counsels/representatives were accompanied to
the Bankards Credit-MIS Group. There, Bankards
representative, Amor Lazaro, described and
explained to petitioners representatives the
steps involved in procuring and translating raw
data on customer transactions. Lazaro explained
that Bankard captures cardholder information and
transactions through encoding or electronic data
capture. Thereafter, such data are transmitted to
its main credit card administration system. Such
raw data are then sent to Bankards Information
Technology Group. Using a proprietary software
called SAS, the raw data is then converted into
SAS files which may be viewed, handled, and
converted into Excel files for reporting purposes.
During
the
walk-through,
petitioners
representatives asked questions which were
answered in detail by Lazaro.
At
the
same
time,
another
Bankard
representative, Felix L. Sincoegue, accompanied
two auditors/representatives of petitioners to
examine the journal vouchers and supporting
documents of Bankard consisting of several
boxes. The auditors randomly sifted through the
boxes which they had earlier requested to be
inspected.
In addition, petitioners were furnished with an
electronic copy of the details of all cardholders,
including relevant data for aging of receivables

for the years 2000 to 2003, as well as data

containing details of written-off accounts from
1999 to March 2000 contained in compact discs. 45
On March 4, 2005, petitioners sent a letter 46 to
the tribunal requesting for a postponement of the
April 11, 2005 hearing of the case. Petitioners
claim that they could not confirm the summaries
prepared by RCBC, considering that RCBC
allegedly did not cooperate in providing data that
would facilitate their verification. Petitioners
specifically mentioned the following data: (1) list
of names of cardholders whose accounts are
sources of data gathered or calculated in the
summaries; (2) references to the basic cardholder
documents from which such data were collected;
and (3) access to the underlying cardholder
documents at a time and under conditions
mutually convenient to the parties. As regards
the compact discs of information provided to
petitioners, it is claimed that such information
could not be accessed as the software necessary
for the handling of the data could not be made
immediately available to them.
In Procedural Order No. 3 dated March 11
2005,47 the initial hearing was moved to June 13
to 16, 2005, considering that petitioners failed to
pay the advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the
advance on costs.48
On April 22, 2005, petitioners sent the tribunal a
letter,49 requesting for the postponement of the
hearing scheduled on June 13 to 16, 2005 on the
ground that they could not submit their witness
statements due to the volume of data that they
acquired from RCBC.
In a letter dated April 25, 2005,50 petitioners
demanded from RCBC that they be allowed to
examine the journal vouchers earlier made
available to them during the February 23, 2005
meeting. This demand was answered by RCBC in
a letter dated April 26, 2005, 51 stating that such
demand was being denied by virtue of Procedural
Order No. 2, in which it was ruled that further
requests for discovery would not be made except
with leave of the chairperson of the tribunal.
In Procedural Order No. 4,52 the tribunal granted
petitioners request for the postponement of the
hearing on June 13, 2005 and rescheduled it to
November 21, 2005 in light of the pending
motions filed by EPCIB with the RTC in Makati City.
92

On July 29, 2005, the parties held a meeting

wherein it was agreed that petitioners would be
provided with hard and soft copies of the
inventory of the journal vouchers earlier
presented to its representatives, while making
the journal vouchers available to petitioners for
two weeks for examination and photocopying. 53
On September 2, 2005, petitioners applied for the
postponement of the November 21, 2005 hearing
due to the following: (1) petitioners had earlier
filed a motion dated August 11, 2005 with the
RTC, in which the issue of whether the nonFilipino members of the tribunal were illegally
practicing law in the Philippines by hearing their
case, which was still pending; and (2) the
gathering and processing of the data and
documents made available by RCBC would
require 26 weeks.54 Such application was denied
by the tribunal in Procedural Order No. 5 dated
September 16, 2005.55
On October 21, 2005, the tribunal issued
Procedural
Order
No.
6,56 postponing
the
November 21, 2005 hearing by virtue of an order
issued by the RTC in Makati City directing the
tribunal to reset the hearing for April 21 and 24,
2006.
Thereafter, in a letter dated January 18,
2006,57 petitioners wrote the tribunal requesting
that RCBC be directed to: (1) provide petitioners
with information identifying the journal vouchers
and other supporting documents that RCBC used
to arrive at the figures set out in the summaries
and other relevant information necessary to
enable them to reconstruct and/or otherwise
understand the figures or amounts in each
summary; and (2) submit to petitioners the
requested pieces of information as soon as these
are or have become available, or in any case not
later than five days.
In response to such letter, RCBC addressed a
letter dated January 31, 200658 to the tribunal
claiming that the pieces of information that
petitioners requested are already known to
petitioners considering that RCBC merely
maintained the systems that they inherited when
it bought Bankard from petitioners. RCBC added
that the documents that EPCIB originally
transmitted to it when RCBC bought Bankard
were all being made available to petitioners;
thus, any missing supporting documents from
these files were never transmitted to them in the
first place.

Later, petitioners sent to the tribunal a letter

dated February 10, 2006,59 asking that it direct
RCBC to provide petitioners with the supporting
documents that RCBC mentioned in its letter
dated January 31, 2006. Petitioners wrote that
should RCBC fail to present such documents,
RCBCs summaries should be excluded from the
records.
In a letter dated March 10, 2006,60 petitioners
requested that they be given an additional period
of at least 47 days within which to submit their
evidence-in-chief with the corresponding request
for the cancellation of the hearing on April 24,
2006. Petitioners submit that should such request
be denied, RCBCs summaries should be excluded
from the records.
On April 6, 2006, petitioners filed their arbitration
briefs and witness statements. By way of reply,
on April 17, 2006, RCBC submitted Volumes IV
and V of its exhibits and Volume II of its evidencein-chief.61
On April 18, 2006, petitioners requested the
tribunal that they be allowed to file rejoinder
briefs, or otherwise exclude RCBCs reply brief
and witness statements.62 In this request,
petitioners also requested that the hearing set for
April 24, 2006 be moved. These requests were
denied.
Consequently, on April 24 to 27, 2006, the
arbitral tribunal conducted hearings on the
case.63
On December 4, 2006, petitioners submitted
rejoinder affidavits, raising new issues for the first
time, to which RCBC submitted Volume III of its
evidence-in-chief by way of a reply.
On January 16, 2007, both parties simultaneously
submitted their memoranda. On January 26,
2007, both parties simultaneously filed their reply
to the others memorandum.64
Thus, on September 27, 2007, the Partial Award
was rendered by the Tribunal.
Later, petitioners moved to vacate the said award
before the RTC. Such motion was denied by the
trial court in the first assailed order dated January
8, 2008. Petitioners then moved for a
reconsideration of such order, but their motion
was also denied in the second assailed order
dated March 17, 2008.
93

The foregoing events unequivocally demonstrate

ample opportunity for petitioners to verify and
examine RCBCs summaries, accounting records,
and reports. The pleadings reveal that RCBC
granted petitioners requests for production of
documents and accounting records. More so, they
had more than three (3) years to prepare for their
defense after RCBCs submission of its brief of
evidence. Finally, it must be emphasized that
petitioners had the opportunity to appeal the
Partial Award to the RTC, which they in fact did.
Later,
petitioners
even
moved
for
the
reconsideration of the denial of their appeal.
Having been able to appeal and move for a
reconsideration of the assailed rulings, petitioners
cannot claim a denial of due process. 65
Petitioners
breached.

right

to

due

process

was

not

As regards petitioners claim that its right to due

process was violated when they were allegedly
denied the right to cross-examine RCBCs
witnesses, their claim is also bereft of merit.
Sec. 15 of RA 876 or the Arbitration Law provides
that:
Section 15. Hearing by arbitrators.
Arbitrators may, at the commencement of
the hearing, ask both parties for brief
statements of the issues in controversy
and/or an agreed statement of facts.
Thereafter the parties may offer such
evidence as they desire, and shall produce
such additional evidence as the arbitrators
shall require or deem necessary to an
understanding and determination of the
dispute. The arbitrators shall be the
sole judge of the relevancy and
materiality of the evidence offered or
produced, and shall not be bound to
conform to the Rules of Court
pertaining to evidence. Arbitrators
shall receive as exhibits in evidence
any document which the parties may
wish to submit and the exhibits shall
be properly identified at the time of
submission. All exhibits shall remain in
the custody of the Clerk of Court during the
course of the arbitration and shall be
returned to the parties at the time the
award is made. The arbitrators may make
an ocular inspection of any matter or
premises which are in dispute, but such
inspection shall be made only in the
presence of all parties to the arbitration,

unless any party who shall have received

notice thereof fails to appear, in which
event such inspection shall be made in the
absence
of
such
party.
(Emphasis
supplied.)
The well-settled rule is that administrative
agencies exercising quasi-judicial powers shall
not be fettered by the rigid technicalities of
procedure, albeit they are, at all times required,
to adhere to the basic concepts of fair play. The
Court wrote in CMP Federal Security Agency, Inc.
v. NLRC:
While administrative tribunals exercising
quasi-judicial powers, like the NLRC and
Labor Arbiters, are free from the rigidity of
certain procedural requirements, they are
nonetheless bound by law and practice to
observe the fundamental and essential
requirements of due process. The standard
of due process that must be met in
administrative tribunals allows a certain
degree of latitude as long as fairness is not
ignored.
Hence,
it
is not legally
objectionable, for being violative of due
process, for the Labor Arbiter to resolve a
case based solely on the position papers,
affidavits
or
documentary
evidence
submitted by the parties. The affidavits of
witnesses in such case may take the place
of their direct testimony.66
Of the same tenor is our holding in Quiambao v.
Court of Appeals:
In resolving administrative cases, conduct
of full-blown trial is not indispensable to
dispense justice to the parties. The
requirement of notice and hearing does not
connote full adversarial proceedings.
Submission of position papers may be
sufficient for as long as the parties thereto
are given the opportunity to be heard. In
administrative
proceedings,
the
essence of due process is simply an
opportunity to be heard, or an
opportunity to explain ones side or
opportunity to seek a reconsideration
of the action or ruling complained of.
This
constitutional
mandate
is
deemed satisfied if a person is
granted an opportunity to seek
reconsideration of an action or a
ruling. It does not require trial-type
proceedings similar to those in the courts
of justice. Where opportunity to be heard
94

either through oral arguments or through

pleadings is accorded, there is no denial of
procedural
due
process. 67 (Emphasis
supplied.)
Citing Vertudes v. Buenaflor, petitioners also cry
denial of due process when they were allegedly
denied the right to cross-examine the witnesses
presented by RCBC. It is true that in Vertudes, we
stated: "The right of a party to confront and
cross-examine opposing witnesses in a judicial
litigation, be it criminal or civil in nature, or in
proceedings before administrative tribunals with
quasi-judicial powers, is a fundamental right
which is part of due process." 68
It is, however, equally true that:
[T]he right is a personal one which may be
waived expressly or impliedly by conduct
amounting to a renunciation of the right of
cross-examination. Thus, where a party
has had the opportunity to crossexamine a witness but failed to avail
himself of it, he necessarily forfeits
the right to cross-examineand the
testimony given on direct examination of
the witness will be received or allowed to
remain
in
the
record. 69 (Emphasis
supplied.)
We also held in one case:
However, the right has always been
understood
as
requiring
not
necessarily
an
actual
crossexamination
but
merely
an
opportunity to exercise the right to
cross-examine if desired. What is
proscribed by statutory norm and
jurisprudential precept is the absence
of the opportunity to cross-examine.
The right is a personal one and may be
waived expressly or impliedly. There is an
implied waiver when the party was given
the opportunity to confront and crossexamine an opposing witness but failed to
take
advantage
of
it for reasons
attributable to himself alone. If by his
actuations,
the
accused
lost
his
opportunity to cross-examine wholly or in
part the witnesses against him, his right to
cross-examine
is
impliedly
70
waived. (Emphasis supplied.)
And later in Velez v. De Vera, the Court En
Banc expounded on the above rulings, adding

that in administrative proceedings,

examination is not indispensable, thus:

cross-

Due process of law in administrative cases

is not identical with "judicial process" for a
trial in court is not always essential to due
process. While a day in court is a matter of
right in judicial proceedings, it is otherwise
in administrative proceedings since they
rest upon different principles. The due
process clause guarantees no particular
form of procedure and its requirements are
not technical. Thus, in certain proceedings
of administrative character, the right to a
notice or hearing [is] not essential to due
process
of
law.
The
constitutional
requirement of due process is met by a fair
hearing before a regularly established
administrative agency or tribunal. It is not
essential that hearings be had before the
making of a determination if thereafter,
there is available trial and tribunal before
which all objections and defenses to the
making of such determination may be
raised and considered. One adequate
hearing is all that due process requires.
What is required for "hearing" may differ as
the functions of the administrative bodies
differ.
The right to cross-examine is not an
indispensable
aspect
of
due
process.71 x x x (Emphasis supplied.)
Clearly, the right to cross-examine a witness,
although a fundamental right of a party, may be
waived. Petitioners themselves admit having had
the opportunity to cross-examine RCBCs
witnesses during the hearings before the tribunal,
but declined to do so by reserving such right at a
later time. Having had the opportunity to crossexamine RCBCs witnesses, petitioners were not
denied their right to due process.
RCBC Is Not Estopped from Questioning
the Financial Condition of Bankard
On estoppel, petitioners contend that RCBC
already knew the recording of the Bankard
accounts before it paid the balance of the
purchase price and could no longer challenge the
financial statements of Bankard. RCBC, they
claim, had full control of the operations of
Bankard since June 2, 2000 and RCBCs audit
team reviewed the accounts in September 2000.
Thus, RCBC is now precluded from denying the
fairness and accuracy of said accounts since it
95

did not seek price reduction under Sec. 5(h).

Lastly, they asseverate that RCBC continued with
Bankards accounting policies and practices and
found them to conform to the generally accepted
accounting principles, contrary to RCBCs
allegations.
It also bears stating that in his dissent, retired
Justice Kapunan, an arbitral tribunal member,
argued that Bankards accounting practices were
disclosed in the information memorandum
provided to RCBC; hence, RCBC was supposed to
know such accounting practices and to have
accepted their propriety even before the
execution of the SPA. He then argued that when it
paid the purchase price on December 29, 2000,
RCBC could no longer claim that the accounting
practices that went into the reporting of the 1999
AFS of Bankard were not in accord with generally
accepted accounting principles. He pointed out
that RCBC was bound by the audit conducted by
a certain Rubio prior to the full payment of the
purchase price of Bankard. Anchored on these
statements by Justice Kapunan, petitioners
conclude that RCBC is estopped from claiming
that the former violated their warranties under
the SPA.
Petitioners contention is not meritorious.
Art. 1431 of the Civil Code, on the subject of
estoppel, provides: "Through estoppel an
admission
or
representation
is
rendered
conclusive upon the person making it, and cannot
be denied or disproved as against the person
relying thereon."

making it, and cannot be denied or

disproved as against the person
relying thereon. A party may not go
back
on
his
own
acts
and
representations to the prejudice of
the other party who relied upon
them. In the law of evidence,
whenever a party has, by his own
declaration,
act,
or
omission,
intentionally and deliberately led
another to believe a particular thing
true, to act upon such belief, he
cannot, in any litigation arising out
of such declaration, act, or omission,
be permitted to falsify it.
The principle received further elaboration
in Maneclang v. Baun:
In estoppel by pais, as related to the
party sought to be estopped, it is
necessary
that
there
be
a
concurrence
of
the
following
requisites: (a) conduct amounting to
false representation or concealment
of material facts or at least
calculated to convey the impression
that the facts are otherwise than,
and inconsistent with, those which
the party subsequently attempts to
assert; (b) intent, or at least
expectation that this conduct shall
be acted upon, or at least influenced
by the other party; and (c)
knowledge, actual or constructive of
the actual facts.

The doctrine of estoppel is based upon the

grounds of public policy, fair dealing, good faith,
and justice; and its purpose is to forbid one to
speak against ones own acts, representations, or
commitments to the injury of one to whom they
were directed and who reasonably relied on
them.72

Estoppel may vary somewhat in definition,

but all authorities agree that a party
invoking the doctrine must have been
misled to ones prejudice. That is the
final and, in reality, most important of the
elements of equitable estoppel. It is this
element that is lacking here.73 (Emphasis
supplied.)

We
explained
the
principle
of
estoppel
in Philippine Savings Bank v. Chowking Food
Corporation:

The elements of estoppel pertaining to the party

estopped are:

x x x The equitable doctrine of estoppel

was explained by this Court in Caltex
(Philippines), Inc. v. Court of Appeals:
Under the doctrine of estoppel, an
admission or representation is
rendered conclusive upon the person

(1) conduct which amounts to a false

representation or concealment of material
facts, or, at least, which calculated to
convey the impression that the facts are
otherwise than, and inconsistent with,
those which the party subsequently
attempts to assert; (2) intention, or at least
expectation, that such conduct shall be
96

acted upon by the other party; and (3)

knowledge, actual or constructive, of the
actual facts.74
In the case at bar, the first element of estoppel in
relation to the party sought to be estopped is not
present.
Petitioners
claim
that
RCBC
misrepresented itself when RCBC made it appear
that they considered petitioners to have
sufficiently complied with its warranties under
Sec. 5(g) and 5(h), in relation to Sec. 7 of the SPA.
Petitioners position is that "RCBC was aware of
the manner in which the Bankard accounts were
recorded, well before it consummated the SPA by
taking delivery of the shares and paying the
outstanding 80% balance of the contract price." 75
Petitioners, therefore, theorize that in this case,
the first element of estoppel in relation to the
party sought to be estopped is that RCBC made a
false representation that it considered Bankards
accounts to be in order and, thus, RCBC
abandoned any claim under Sec. 5(g) and 5(h) by
its inaction.
Such contention is incorrect.
It must be emphasized that it was only after a
second audit that RCBC presented its claim to
petitioners for violation of Sec. 5(g), within the
three (3)-year period prescribed. In other words,
RCBC, prior to such second audit, did not have
full and thorough knowledge of the correctness of
Bankards accounts, in relation to Sec. 5(g).
RCBC, therefore, could not have misrepresented
itself considering that it was still in the process of
verifying the warranties covered under Sec. 5(g).
Considering that there must be a concurrence of
the elements of estoppel for it to arise, on this
ground alone such claim is already negated. As
will be shown, however, all the other elements of
estoppel are likewise absent in the case at bar.
As to the second element, in order to establish
estoppel, RCBC must have intended that
petitioners would act upon its actions. This
element is also missing. RCBC by its actions did
not mislead petitioners into believing that it
waived any claim for violation of a warranty. The
periods under Sec. 5(g) and 5(h) were still
available to RCBC.
The element that petitioners relied on the acts
and conduct of RCBC is absent. The Court finds
that there was no reliance on the part of
petitioners on the acts of RCBC that would lead
them to believe that the RCBC will forego the

filing of a claim under Sec. 5(g). The allegation

that RCBC knew that the Bankard accounts did
not comply with generally accepted accounting
principles before payment and, hence, it cannot
question the financial statements of Bankard is
meritless. Precisely, the SPA explicitly provides
that claims for violation of the warranties under
Sec. 5(g) can still be filed within three (3) years
from the closing date. Petitioners contention that
RCBC had full control of Bankard operations after
payment of the price and that an audit
undertaken by the Rubio team did not find
anything wrong with the accounts could not have
plausibly misled petitioners into believing that
RCBC will waive its right to file a claim under Sec.
5(g). After all, the period to file a claim under Sec.
5(g) is three (3) years under Sec. 7, much longer
than the six (6)-month period under Sec. 5(h).
Petitioners are fully aware that the warranties
under Sec. 5(g) (1997 up to March 2000) are of a
wider scope than that of Sec. 5(h) (AFS of 1999
and UFS up to May 31, 2000), necessitating a
longer audit period than the six (6)-month period
under Sec. 5(h).
The third element of estoppel in relation to the
party sought to be estopped is also absent
considering that, as stated, RCBC was still in the
process of verifying the correctness of Bankards
accounts prior to presenting its claim of
overvaluation to petitioners. RCBC, therefore, had
no sufficient knowledge of the correctness of
Bankards accounts.
On another issue, RCBC could not have
immediately changed the Bankard accounting
practices until it had conducted a more extensive
and thorough audit of Bankards voluminous
records and transactions to uncover any
irregularities. That would be the only logical
explanation why Bankards alleged irregular
practices were maintained for more than two (2)
years from closing date. The fact that RCBC
continued with the audit of Bankards AFS and
records after the termination of the Rubio audit
can only send the clear message to petitioners
that RCBC is still entertaining the possibility of
filing a claim under Sec. 5(g). It cannot then be
said that petitioners reliance on RCBCs acts
after full payment of the price could have misled
them into believing that no more claim will be
presented by RCBC.
The Arbitral Tribunal explained in detail why
estoppel is not present in the case at bar, thus:

97

10.18 The audit exercise conducted by Mr.

Legaspi and Mr. Rubio was clearly not one
comprehensive enough to have discovered
the problems later unearthed by Dr. Laya
and Dean Ledesma. x x x
10.19 Although the powers of the TC
[Transition Committee] may have been
widely expressed in the view of Mr. Rogelio
Chua, then in charge of Bankard x x x the
TC conducted meetings only to get
updated on the status and progress of
Bankards operations. Commercially, one
would expect that an unpaid vendor
expecting to receive 80% of a large
purchase price would not be receptive to a
purchaser making vast policy changes in
the operation of the business until the
purchaser has paid up its money. It is more
likely that, until the settlement date, there
was a practice of maintaining the status
quo at Bankard.
10.20 But neither the Claimant nor the TC
did anything, in the Tribunals view, which
would have given the Respondents the
impression that they were being relieved
over the next three years of susceptibility
to a claim under clause 5(g). Maybe the TC
could have been more proactive in
commissioning further or more in-depth
audits but it was not. It did not have to be.
It is commercially unlikely that it have been
done so, with the necessary degree of
attention to detail, within the relatively
short time between the appointment of the
TC and the ultimate settlement date of the
purchase a period of some three months.
An interim arrangement was obviously
sensible to enable the Claimant and its
staff to become familiar with the practices
and procedures of Bankard.
10.21 The core consideration weighing with
the Tribunal in assessing these claims for
estoppel is that the SPA allowed two types
of claim; one within six months under 5(h)
and one within three years under 5(g). The
Tribunal has already held the present claim
is not barred by clause 5(h). It must
therefore have been within the reasonable
contemplation of the parties that a 5(g)
claim could surface within the three-year
period and that it could be somewhat
differently assessed than the claim under
5(h). The Tribunal cannot find estoppel by
conduct either from the formation of the TC

or from the limited auditing exercise done

by Mr. Rubio and Mr. Legaspi. The onus
proving estoppel is on the Respondents
and it has not been discharged.
10.22 If the parties had wished the
avenues of relief for misrepresentation
afforded to the Claimant to have been
restricted to a claim under Clause 5(h),
then they could have said so. The special
audit may have provided an answer to any
claim based on clause 5(h) but it cannot do
so in respect of a claim based on Clause
5(g). Clause 5(g) imposed a positive
obligation on the Respondents from which
they cannot be excused, simply by reason
of either the formation and conduct of the
TC or of the limited audit.
10.23 The three-year limitation period
obviously contemplated that it could take
some time to ascertain whether there had
been a breach of the GAAP standards, etc.
Such was the case. A six-month limitation
period under Clause 5(h), in contrast,
presaged a somewhat less stringent
enquiry of the kind carried out by Mr. Rubio
and Mr. Legaspi.
10.24 Clause 2(3) of the Amendment to the
SPA strengthens the conclusion that the
parties were concerned only with a 5(h)
claim during the TCs reign. The focus of
the audit however intense it was
conducted by Mr. Rubio and Mr. Legaspi,
was on establishing possible liability under
that section and thus as a possible
reduction in the price to be paid on
settlement.
10.25 The fact that the purchase price was
paid over in full without any deduction in
terms of clause 5(h) is not a bar to the
Claimant bringing a claim under 5(g) within
the three-year period. The fact that
payment was made can be, as the Tribunal
has held, a barrier to a claim for rescission
and restitution ad inegrum. A claim for
estoppel needs a finding of representation
by words of conduct or a shared
presumption that a right would not be
relied upon. The party relying on estoppel
has to show reliance to its detriment or
that, otherwise, it would be unconscionable
to resile from the provision.
10.26 Article 1431 of the Civil Code states:
98

"Through estoppel an admission or

representation is rendered conclusive upon
the person making it, and cannot be
denied or disproved as against the person
relying thereon."
10.27 Clearly, there has to both an
admission or representation by (in this
case) the Claimant, plus reliance upon it by
(in this case) the Respondents. The
Tribunal cannot find as proved any
admission/representation that the Claimant
was abandoning a 5(g) claim, any reliance
by Respondents on an admission, and any
detriment to the Respondents such as
would entitle them to have the Claimant
deprived of the benefit of clause 5(g).
These aspects of the claim of estoppel are
rejected.
xxxx
10.42 The Tribunal is not the appropriate
forum for deciding whether there have
been any regulatory or ethical infractions
by Bankard and/or the Claimant in setting
the buy-back price. It has no bearing on
whether the Claimant must be considered
as having waived its right to claim against
the Respondents.
10.43 In the Tribunals view, neither any
infraction by Bankard in failing to advise
the Central Bank of the experts findings,
nor a failure to put a tag on the accounts
nor to have said something to the
shareholders in the buy-back exercise
operates as a "technical knock-out" of
Claimants claim.
10.44 The Tribunal notes that the
conciliation process mandated by the SPA
took most of 2003 and this may explain a
part of the delay in commencing arbitral
proceedings.
10.45 Whatever the status of Mr. Rubios
and Mr. Legaspis enquiries in late 2000,
the Claimant was quite entitled to
commission subsequent reports from Dr.
Laya and Dr. Echanis and, on the basis of
those reports, make a timeous claim under
clause 5(g) of the SPA.
10.46 In the Tribunals view, therefore,
there is no merit in Respondents various

submissions that the Claimant is debarred

from prosecuting its claims on the grounds
of estoppel. There is just no proof of the
necessary
representation
to
the
Respondent, nor any detriment to the
Respondent proved. The grounds of delay
and laches are not substantiated.
In summary, the tribunal properly ruled that
petitioners failed to prove that the formation of
the Transition Committee and the conduct of the
audit by Rubio and Legaspi were admissions or
representations by RCBC that it would not pursue
a claim under Sec. 5(g) and that petitioners relied
on such representation to their detriment. We
agree with the findings of the tribunal that
estoppel is not present in the situation at bar.
Additionally, petitioners claim that in Knecht v.
Court
of
Appeals76 and Coca-Cola
Bottlers
Philippines, Inc. v. Court of Appeals (CocaCola),77 this Court ruled that the absence of the
element of reliance by a party on the
representation of another does not negate the
principle of estoppel. Those cases are, however,
not on all fours with and cannot be applied to this
case.
In Knecht, the buyer had the opportunity of
knowing the conditions of the land he was buying
early on in the transaction, but proceeded with
the sale anyway. According to the Court, the
buyer was estopped from claiming that the
vendor made a false representation as to the
condition of the land. This is not true in the
instant case. RCBC did not conduct a due
diligence audit in relation to Sec.5(g) prior to the
sale due to petitioners express representations
and warranties. The examination conducted by
RCBC, through Rubio, after the execution of the
SPA on June 2, 2000, was confined to finding any
breach under Sec. 5(h) for a possible reduction of
the purchase price prior to the payment of its
balance on December 31, 2000. Further, the
parties clearly agreed under Sec. 7 of the SPA to
a three (3)-year period from closing date within
which to present a claim for damages for
violation of the warranties under the SPA.
Hence, Knecht is not a precedent to the case at
bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers
was well aware of the nature and situation of the
land relative to its intended use prior to the
signing of the contract. Its subsequent assertion
that the land was not suited for the purpose it
was leased was, therefore, cast aside for being
99

unmeritorious. Such circumstance does not

obtain in the instant case. There was no prior due
diligence audit conducted by RCBC, it having
relied, as earlier stated, on the warranties of
petitioners with regard to the financial condition
of Bankard under Sec. 5(g). As such, Sec. 5(g)
guaranteed RCBC that it could file a claim for
damages for any mistakes in the AFS and UFS of
Bankard.
Clearly,Coca-Cola also
cannot
be
applied to the instant case.
It becomes evident from all of the foregoing
findings that the ICC-ICA is not guilty of any
manifest disregard of the law on estoppel. As
shown above, the findings of the ICC-ICA in the
Partial Award are well-supported in law and
grounded on facts. The Partial Award must be
upheld.
We close this disposition with the observation
that a member of the three-person arbitration
panel was selected by petitioners, while another
was respondents choice. The respective interests
of the parties, therefore, are very much
safeguarded in the arbitration proceedings. Any
suggestion, therefore, on the partiality of the
arbitration tribunal has to be dismissed.
WHEREFORE,
the
instant
petition
is
hereby DENIED. The assailed January 8, 2008
and March 17, 2008 Orders of the RTC, Branch
148 in Makati City are hereby AFFIRMED. SO
ORDERED
15.
EMPIRE
EAST
HOLDINGS,
Petitioner,

LAND G.R. No. 168074

INC.,
Present:

- versus -

YNARESSANTIAGO,
J.,
CAPITOL
INDUSTRIAL Chairperson,
CONSTRUCTION GROUPS,
INC.,
AUSTRIARespondent.
MARTINEZ,
CHICO-NAZARIO,
VELASCO, JR.,* and
NACHURA, JJ.
Promulgated:
September
2008

26,

x-----------------------------------------------------------------------------------x

DECISION
NACHURA, J.:
Before us is a Petition for Review on Certiorari
under Rule 45 of the Rules of Court, of the Court
of Appeals (CA) Decision1 dated November 3,
2004 and its Resolution2 dated May 10, 2005, in
CA-G.R. SP No. 58980. The assailed decision
modified the Decision3 of the Construction
Industry Arbitration Commission (CIAC) dated
May 16, 2000 in CIAC No. 39-99.
The facts of the case, as found by the CIAC and
affirmed by the CA, follow:
On February 12, 1997, petitioner Empire East
Land Holdings, Inc. and respondent Capitol
Industrial Corporation Groups, Inc. entered into a
Construction Agreement4 whereby the latter
bound itself to undertake the complete supply
and installation of "the building shell wet
construction" of the formers building known as
Gilmore Heights Phase I, located at Gilmore cor.
Castilla St., San Juan, Metro Manila. 5 The
pertinent portion of the aforesaid agreement is
quoted hereunder for easy reference:
ARTICLE II - SCOPE OF WORK
2.1. The CONTRACTOR shall complete the
civil/structural and masonry works of the building
based on the works (sic) items covered by the
CONTRACTORs Proposal of Complete Supply and
Installation of Building Shell Wet Construction
Works as indicated in the plans and specifications
at the Contract Price and within the Contract time
herein stipulated and in accordance with the
plans and specifications. The CONTRACTOR shall
furnish and supply all necessary labor, equipment
and tools, supervision and other facilities needed
and shall perform everything necessary for the
complete and successful masonry works of the
building described hereof, provided that it
pertains to or is part of the above mentioned
work or items covered by the Contract
documents.
2.2. The scope of works as stated hereunder but
not limited to the following:
a) CONCRETE WORKS foundation and footings,
tie beams, walls, columns, beams, girders, slabs,
stairs, stair slabs, cement floor topping, ramps,
rubbed concrete.
100

b) MASONRY WORKS interior and exterior walls

including stiffeners, CHB laying, interior and
exterior plastering, non-skid tile installation and
scratch coating for tile installation.
c) FORMWORKS
d) OTHER CONCRETE WORKS trenches, platform
for transformers, ger sets and aircons
e) METAL WORKS trench grating, I-beam
separator, manhole cover, ladder rungs of tanks,
stair railings and stair nosing
f) MISCELLANEOUS WORKS
- installation of Doors and Jambs (metal and
wood)
- Lintel Beams/Stiffener Columns
- Installation of Hardwares and accessories

contractor would have completely turned over

the site.8
After a series of correspondence between
petitioner and respondent, February 25, 1997 was
proposed as "Day 1." Accordingly, respondents
completion date of the project was fixed on
January 21, 1998.9
Prior to and during the construction period,
changes in circumstances arose, prompting the
parties to make adjustments in the initial terms of
their contract. The following pertinent changes
were mutually agreed upon by the parties:
First, as the bulk excavation contractor refused to
return to the project site, petitioner directed
respondent to continue the excavation work;10
Second, in addition to respondents scope of
work, it was made to perform side trimmings.

- Window and Door Openings

Third, petitioner directed respondent to reduce

the monthly target accomplishment to P1 million
worth of work and up to one (1) floor only. 11

g) MISCELLANEOUS ITEMS column guard, wheel

guard, waterstop, vapor barrier, incidental
embeds, floor hardener, dustproofer, sealant, soil
treatment, elevator block-outs for call button,
block-outs for electro-mechanical works and
concrete landing sills.

Fourth, the following were deleted from

respondents scope of work: a) Masonry works
and all related items from 6th floor to roof deck;
b) All exterior masonry works from 4th floor to
roof deck; and c) Garbage chute.12

h) ROOFING WORKS Steel Trusses/Purlins, Rib

Type pre-painted roofing sheets, Insulation

Fifth, as a consequence of the deletion of the

above works, the contract price was reduced
toP62,828,826.53.13

i) Garbage Chutes
2.3. The work of the CONTRACTOR shall include
but not be limited to, preparing the bill of
materials, canvassing of prices, requisition of
materials for purchase by OWNER, following up of
orders, checking the quality and quantity of the
materials within the premises of the construction
site and returning defective materials.6
Respondent further agreed that the construction
work would be completed within 330 calendar
days from "Day 1," upon the Construction
Managers
confirmation.7 Petitioner
initially
considered February 20, 1997 as "Day 1" of the
project. However, when respondent entered the
project site, it could not start work due to the ongoing bulk excavation by another contractor.
Respondent thus asked petitioner to move "Day
1" to a later date, when the bulk excavation

Sixth, the parties agreed: that the items of work

or any part thereof not completed by the
respondent as of February 28, 1999 should be
deleted from its contract, except demobilization;
the punch list items under respondents scope of
responsibility not yet made good/corrected as of
the same period shall be done by others at a
fixed cost to be agreed upon by all concerned;
and respondent should be compensated for the
cost of utilities it installed but were still needed
by other contractors to complete their work.14
Lastly, they agreed that a joint quantification
should be done to establish the bottom line
figures as to what were to be deleted from the
respondents contract and the cost of completing
the punch list items which were deductible from
respondents receivables.15

101

In view of the limitation on the target

accomplishment to P1 million worth of work per
month, respondent asked that the topping-off be
moved to February 1999. Respondent likewise
requested a price adjustment with respect to
overhead and equipment expenses and legislated
additional labor cost. These requests were not,
however, acted upon by petitioner. 16
After the completion of the side trimmings and
excavation
of
the
buildings
foundation,
respondent
demanded
the
payment
of P2,248,507.70
and P1,805,225.90,
respectively. Instead of paying the amount,
petitioner agreed with the respondent on a
negotiated amount of P900,000.00 for side
trimmings.17 However, respondents claim for
foundation
excavation
was
not
acted
upon.18 During the construction period, petitioner
granted, on separate occasions, respondents
requests
for
payroll
and
material
accommodations.19
On March 13, 1999, respondent submitted its
final
billing,
amounting
to P4,442,430.90
representing its work accomplishment and
retention, less all deductions. On March 23, 1999,
a punch list was drawn as a result of the joint
inspection undertaken by the parties. Petitioner,
on the other hand, refused to issue a certificate
of completion. It, instead, sent a letter to
respondent informing the latter that it was
already in default.20
On September 14, 1999, respondent was
constrained
to
file
a
Request
for
21
Adjudication with
the
CIAC.
Respondent
specifically prayed, thus:
WHEREFORE, premises considered, the ClaimantContractor prays that this Honorable Commission
render judgment against Respondent-Owner
EMPIRE EAST LAND HOLDINGS, INC., ordering
said Respondents to pay the Claimant the
amount of PhP22,770,976.66 plus costs of suit,
broken down as follows:
a. PhP4,442,430.90 as unpaid amount from the
contract price;
b. PhP3,153,733.60 as the amount remaining
unpaid for additional works;
c. PhP13,976,427.00 as overhead expenses; and

d. PhP1,198,385.16 as additional costs due to

wage escalation;
Other reliefs equitable under the premises are
also prayed for.22
On May 16, 2000, the CIAC rendered a
decision23 in favor of the respondent, disposing,
as follows:
WHEREFORE, judgment is hereby rendered and
AWARD of monetary claims is hereby made as
follows:
FOR THE RESPONDENT:

1. Punch List Items

Total due the Respondent
All other claims and counterclaims are dismissed.
OFFSETTING the lesser amount due from
Claimant with the bigger amount from the
Respondent, EMPIRE EAST LAND HOLDINGS, INC.
is hereby ordered to pay CAPITOL INDUSTRIAL
CONSTRUCTION GROUPS, INC. the net amount of
SEVEN MILLION SEVEN HUNDRED SIXTY-FIVE
THOUSAND SIX HUNDRED THIRTY-ONE AND
81/100 (P7,765,631.81) with 6% legal interest
from the time the request for adjudication was
filed with the CIAC on September 14, 1999 up to
the time this Decision becomes final and
executory.
Thereafter, interest at the rate of 12% per annum
shall accrue on the final judgment until it is fully
paid.
The arbitration fees and expenses shall be paid
on a pro rata basis as initially shared by the
parties.
SO ORDERED.24
As to petitioners counterclaim, the CIAC denied
those which referred to masonry and other works
that it took over, considering that they were
formally deleted from respondents scope of
work, which in turn caused the reduction of their
total contract price.25 Petitioners claim for
liquidated
damages
was
likewise
found
unmeritorious because it allowed respondent to
complete the works despite knowledge that the
latter was already in default. 26 On the other hand,
102

as the punch list was drawn after the joint

inspection by the parties, CIAC found for the
petitioner and thus awarded a total amount
of P248,350.0027

WHETHER OR NOT THE COURT OF APPEALS

COMMITTED REVERSIBLE ERROR WHEN IT
AWARDED THE CLAIM OF CICG FOR THE
EXCAVATION OF FOUNDATION.

Aggrieved, petitioner elevated the matter to the

CA via a petition for review under Rule 43 of the
Rules of Court. On November 3, 2004, the CA
affirmed the CIACs findings of fact and
conclusions of law with a slight modification, and
ruled:

III.

WHEREFORE, the Decision, dated 16 May 2000,

of
the
Construction
Industry
Arbitration
Commission Arbitral Tribunal is hereby AFFIRMED
WITH MODIFICATION in that CIACs award on
Labor Cost Escalation is hereby DELETED for lack
of factual basis and, consequently, for lack of
cause of action and CIACs award on Additional
Work for Foundation Excavation is hereby
equitably REDUCED to P980,376.34. All other
awards, as well as the rates of interest, are
hereby AFFIRMED.

IV.

Accordingly, the total amount due to CICG

is P6,880,905.68.
While
EELH
is
entitled P248,350.00. Offsetting the award of
EELH from the amount due to CICG, EELH is
hereby ORDERED to pay CICG the total amount of
SIX
MILLION
SIX
HUNDRED
THIRTY-TWO
THOUSAND FIVE HUNDRED FIFTY-FIVE PESOS
(P6,632,555.00). No costs at this instance.
SO ORDERED.28
In deleting respondents claim for labor cost
escalation and reducing its claim for the cost of
the excavation of foundation, the appellate court
said that respondent failed to show that it in fact
paid said wage increase pursuant to the New
Wage Order,29 while the reduction of the cost of
foundation excavation was the result of the
reduction of its cost per cubic meter. 30
Hence, the present petition, raising the following
issues:
I.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT
ORDERED THE RELEASE OF RETENTION MONEY IN
FAVOR OF CICG.
II.

WHETHER OR NOT THE COURT OF APPEALS

COMMITTED REVERSIBLE ERROR WHEN IT
AFFIRMED CIACS AWARD FOR THE PAYMENT OF
ALLEGED OVERHEAD EXPENSES.

WHETHER OR NOT THE COURT OF APPEALS

COMMITTED REVERSIBLE ERROR WHEN IT
DENIED EMPIRE EASTS CLAIM FOR MASONRY
AND OTHER WORKS, LIQUIDATED DAMAGES, AND
COST OF MONEY FOR PAYROLL ASSISTANCE AND
MATERIALS ACCOMMODATION.31
The petition is partly meritorious.
On the Release of Retention Money
Petitioner contends that both the CIAC and the CA
erred in ordering the release of the retention
money despite respondents failure to comply
with the conditions for its release as set forth in
the contract.
We find for the petitioner.
In the construction industry, the ten percent
(10%) retention money is a portion of the
contract price automatically deducted from the
contractors billings, as security for the execution
of corrective work if any becomes necessary. 32
The construction contract gave petitioner the
right to retain 10% of each progress payment
until
completion
and
acceptance
of
all
works.33 Undoubtedly, as will be discussed
hereunder, respondent complied fully with its
obligations, save only those items of work which
were mutually deleted by the parties from its
scope of work. However, apart from the
completion and acceptance of all works, the
following requisites were set as pre-conditions for
the release of the retention money:
a) Contractors Sworn Statement showing that all
taxes due from the CONTRACTOR, and all
obligations on materials used and labor employed
in connection with this contract have been duly
paid;
103

b) Guarantee Bond to answer for faulty and/or

defective materials or workmanship as stated in
Article IX Section 9.3 of this Contract;
c) Original and signed and sealed Three (3) sets
of prints of "As Built" drawings. 34
The CA affirmed the CIACs decision to order the
release of the retention money despite
respondents failure to establish the fulfillment of
the aforementioned conditions, as both tribunals
merely focused on the non-issuance of the
certificate of completion, which, according to
respondent, was a pre-requisite to the issuance of
a guarantee bond. The CA concluded that the
conditions were deemed fulfilled because the
creditor voluntarily prevented their fulfillment.
To this, we cannot agree.
The record of the case is bereft of any evidence
to show that conditions (a) and (c) were complied
with. Petitioner categorically stated in all its
pleadings that they were not. Surprisingly,
respondent did not squarely argue this point. It
relied solely on petitioners failure to issue the
certificate of completion, which prevented the
acquisition of a guarantee bond and thus resulted
in the non-release of the retention money. While
it is true that respondent was entitled to a
certificate of completion as the issuance thereof
was just a ministerial duty of petitioner
considering that the project had already been
completed, the certificate was not the only
condition for said release. It was simply a prerequisite for the issuance of the guarantee bond.
And there was no showing that the absence of
the certificate of completion was the only reason
why no guarantee bond was issued.
If we were to apply the civil law rule of
constructive fulfillment the condition shall be
deemed fulfilled if the creditor voluntarily
prevented its fulfillment then the submission of
a guarantee bond may be deemed to have been
complied with. But we cannot apply the rule to
conditions (a) and (c), which remain as unfulfilled
conditions-precedent. Since no proof was
adduced that these two conditions were complied
with, petitioners obligation to release the
retention money had not, as yet, arisen. We
would like to emphasize, though, that this is
without prejudice to respondents compliance
with the unfulfilled conditions, after which,
release of the retention money must, perforce,
follow.

On Respondents Right to Additional Overhead

Costs
Respondent claimed P13,976,427.00 as additional
overhead expenses brought about by the delay in
the completion of the project due to petitioners
own acts. The CIAC, however, awarded only a
nominal amount which is 10% of respondents
claim because of its failure to present supporting
documents to prove such additional expenses.
The arbitral tribunal observed that respondent
only presented its own computation without any
other document to substantiate its claim. The CA,
in turn, affirmed the CIAC findings, ratiocinating
that petitioners failure to present countervailing
evidence was an implied admission on its part
that the computation made by respondent was
correct.
We beg to differ.
It is undisputed that the only piece of evidence
presented by respondent in support of its claim
for additional overhead cost was its own
computation of the said expenses. It failed to
adduce actual receipts, invoices, contracts and
similar documents. To be sure, respondents claim
for overhead cost may be classified as a claim for
actual damages. Actual damages are those
damages which the injured party is entitled to
recover for the wrong done and injuries received
when none were intended. They indicate such
losses as are actually sustained and are
susceptible of measurement. As such, they must
be proven with a reasonable degree of certainty. 35
This is not the first time that a contractors claim
for additional overhead costs was denied because
of insufficiency or absence of evidence to support
the same. In Filipinas (Pre Fab Bldg.) Systems, Inc.
v. MRT Development Corporation,36 we denied
FSIs claim because only "summaries," and not
actual receipts, were presented during the
hearing.
Similarly,
in
the
instant
case,
respondent, by presenting only its own
computation to substantiate its claim, is not
entitled
even
to
the
reduced
amount
ofP1,397,642.70 which is 10% of its original
claim. Instead, we altogether deny its prayer for
additional overhead costs.
On Respondents Right to the Cost of Foundation
Excavation
As to respondents entitlement to the cost of
excavation of foundation, we find no cogent
104

reason to disturb the CIACs conclusion, as

modified by the CA.
Side trimmings and the excavation of foundation
were not included in respondents original scope
of work. They were, however, undertaken by the
respondent upon the directive of petitioner, due
to the previous contractors refusal to resume its
excavation work. These works, therefore,
constitute an additional claim of respondent over
and above the original contract price. A
confirmation of these works had, in fact, been
given by petitioner through Change Order Nos.
337 and 438 where it agreed to pay P250,000.00
and P650,000.00, respectively. This P900,000.00
negotiated amount referred specifically to side
trimmings and hauling out of adobe soil. It is
unfortunate, though, that the parties failed to
arrive at a settlement as to respondents claim
for the cost of excavation of foundation.
The additional works having been undertaken by
respondent, and the fact of non-payment thereof
having been established, we find no reason to
disturb the CIACs conclusion that respondent is
entitled to its claim for the cost of excavation of
foundation. As to the propriety of the award, both
the CIAC and the CA were in a better position to
compute the same considering that said issue is
factual in nature. Significantly, jurisprudence
teaches that mathematical computations, as well
as the propriety of arbitral awards, are factual
determinations39 which are better examined by
the lower courts as trier of facts. Thus, we affirm
the
award
of P980,376.34
for
foundation
excavation.
On Petitioners Counterclaim for the Cost of
Unfinished Works
During the construction period, the parties
mutually agreed that some items of work be
deleted from respondents scope of work.
Specifically, as claimed by respondent, the
following were deleted: a) masonry works and all
related items from the 6th floor to the roof deck;
b) all exterior masonry works from the 4th floor to
the roof deck; and c) the garbage chute. This
deletion was, however, denied by petitioner. It,
instead, claimed that the only modification it
approved was the reduction by three floors of the
total number of floors to be constructed by
respondent.40
After a thorough review of the documents
presented by both parties, both the CIAC and the
CA concluded that the unfinished works, i.e.,

masonry works, were actually recognized and

accepted by petitioner. It thus agreed to take
over, through its new contractor, the balance of
work. The only consequence of such acceptance
was the deduction of the value of the unfinished
works from the total contract price. 41 This was the
reason why the contract price was reduced
from P84 million toP62,828,826.53. The deletion
was, likewise, confirmed by respondent in a letter
dated August 21, 1998.42
Applying Article 123543 of the Civil Code,
petitioners act exempted respondent from
liability for the unfinished works. A person
entering into a contract has a right to insist on its
performance in all particulars, according to its
meaning and spirit. But if he chooses to waive
any of the terms introduced for his own benefit,
he may do so.44 When the obligee accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any protest
or objection, the obligation is deemed fully
complied with.
In the instant case, petitioner was aware of the
unfinished work of respondent; yet, it did not
raise any objection or protest. It, instead,
voluntarily hired another contractor to perform
the unfinished work, and opted to reduce the
contract price. By removing from the contract
price the value of the works deleted, it is as if
said items were not included in the original
terms, in the first place. Thus, as correctly
concluded by the CIAC, and as affirmed by the
CA, petitioner is not entitled to reimbursement
from respondent for the expenses it incurred to
complete the unfinished works.
On Petitioners
Damages

Counterclaim

for

Liquidated

In addition to its claim for the cost of masonry

and other works, petitioner demanded the
payment of liquidated damages on the ground
that respondent was in default in the
performance of its obligation.
Liquidated damages are those that the parties
agree to be paid in case of a breach. As worded,
the amount agreed upon answers for damages
suffered by the owner due to delays in the
completion of the project. Under Philippine laws,
they are in the nature of penalties. They are
attached to the obligation in order to ensure
performance.45 As a pre-condition to such award,
however, there must be proof of the fact of delay
in the performance of the obligation.
105

Thus, the resolution of the issue of petitioners

entitlement to liquidated damages hinges on
whether respondent was in default in the
performance of its obligation.
The completion date of the construction project
was initially fixed on January 21, 1998. However,
due to causes beyond the control of respondent,
the latter failed to perform its obligation as
scheduled. The CIAC46 and the CA enumerated
the causes of the delay, viz., the delayed
issuance of building permit;47 additional work
undertaken by respondent, i.e., bulk excavation
and side trimmings;48delayed payment of
progress billings;49 delayed delivery of ownersupplied construction materials;50and limitation of
monthly accomplishment.51 All these causes of
respondents failure to complete the project on
time were attributable to petitioners fault.
Still, petitioner contends that even at the start
and for the entire duration of the construction,
respondent was guilty of delay due to insufficient
manpower and lack of technical know-how. 52 Yet,
petitioner allowed respondent to proceed with the
project; thus, petitioner cannot now be permitted
to raise anew respondents alleged delay. More
importantly, respondent is not guilty of breach of
the obligation; hence, it cannot be held liable for
liquidated damages.
On Petitioners Counterclaim for the Cost of
Payroll Assistance and Materials Accommodation
Finally, as to petitioners counterclaim for payroll
assistance and materials accommodation, we
quote with approval the CAs observation in this
wise:
[W]ith respect to EELHs [petitioners] claim for
payroll and material assistance, a perusal of
CIACs questioned Decision reveals that these
were already taken into consideration and, were
in fact, deducted from CICGs [respondents]
retention money itemized as unpaid billings
amounting toP1,607,627.65.
On page 9 of CIACs Decision, the arbitral tribunal
found that the total amount of payroll
accommodation advanced by EELH [petitioner]
for (sic) CICG [respondent] is P10,044,966.16,
while the material assistance advanced by EELH
[petitioner] is P2,837,645.26. These amounts
were added together with other items and were
deducted from the reduced contract price. Hence,
as can be gleaned from page 13 of the CIACs
Decision, EELHs [petitioners] overpayment

amounting toP1,607,627.65 already included

EELHs [petitioners] payroll accommodation and
material accommodations.53
As can be gleaned from the appealed CA
decision, the appellate court had reviewed the
case based on the petition and annexes, and
weighed them against the Comment of
respondent and the decision of the arbitral
tribunal to arrive at the conclusion that the latter
decision was based on substantial evidence. In
administrative or quasi-judicial bodies like the
CIAC, a fact may be established if supported by
substantial evidence, or that amount of relevant
evidence which a reasonable mind might accept
as adequate to justify a conclusion.54
It is well established that under Rule 45 of the
Rules of Court, only questions of law, not of fact,
may be raised before the Supreme Court. It must
be stressed that this Court is not a trier of facts
and it is not its function to re-examine and weigh
anew the respective evidence of the parties. 55 To
be sure, findings of fact of lower courts are
deemed conclusive and binding upon the
Supreme Court, save only in clear exceptional
cases.56
In view of the foregoing, after deducting from the
final contract price the retention money (that is
yet to be released), the payments as well as the
payroll and material accommodations made by
the petitioner, there was an overpayment to
respondent in the total amount of P1,607,627.65.
From said amount shall be deducted P980,376.34
due the respondent for the cost of foundation
excavation. On the other hand, as held by the
CIAC and affirmed by the CA, petitioner is entitled
to its claim for punch list items amounting
to P248,350.00.
Considering that the conditions set forth in the
contract have not yet been complied with, the
release of the retention money shall be held in
abeyance. Thus, respondent is liable to petitioner
for the payment of P875,601.31, which is the
difference between the overpayment and the cost
of foundation excavation, plus the cost of punch
list items.
WHEREFORE, premises considered, the petition is
PARTIALLY GRANTED. The Decision of the Court of
Appeals dated November 3, 2004 and its
Resolution dated May 10, 2005 in CA-G.R. SP No.
58980, are MODIFIED by deleting the award of
additional
overhead
cost
amounting
toP1,397,642.70.
106

The petitioner is directed to issue to respondent

the required certificate of completion in order to
enable the latter to obtain the corresponding
guarantee bond. In view of the non-fulfillment of
the conditions-precedent, the release of the
retention money is hereby held in abeyance.
Thus, respondent is ordered to pay the
petitioner P875,601.31 subject to the return of
the amount when respondent shall have complied
with the conditions aforesaid. SO ORDERED.
16. G.R. No. 169332
2008

February 11,

ABS-CBN
BROADCASTING
CORPORATION, petitioner,
vs.
WORLD
INTERACTIVE
NETWORK
SYSTEMS
(WINS)
JAPAN
CO.,
LTD., respondent.
DECISION
CORONA, J.:
This petition for review on certiorari under Rule
45 of the Rules of Court seeks to set aside the
February 16, 2005 decision1 and August 16, 2005
resolution2 of the Court of Appeals (CA) in CA-G.R.
SP No. 81940.
On September 27, 1999, petitioner ABS-CBN
Broadcasting Corporation entered into a licensing
agreement with respondent World Interactive
Network Systems (WINS) Japan Co., Ltd., a foreign
corporation licensed under the laws of Japan.
Under the agreement, respondent was granted
the exclusive license to distribute and sublicense
the distribution of the television service known as
"The Filipino Channel" (TFC) in Japan. By virtue
thereof, petitioner undertook to transmit the TFC
programming signals to respondent which the
latter received through its decoders and
distributed to its subscribers.
A dispute arose between the parties when
petitioner accused respondent of inserting nine
episodes of WINS WEEKLY, a weekly 35-minute
community news program for Filipinos in Japan,
into the TFC programming from March to May
2002.3 Petitioner claimed that these were
"unauthorized insertions" constituting a material
breach of their agreement. Consequently, on May
9, 2002,4 petitioner notified respondent of its
intention to terminate the agreement effective
June 10, 2002.

Thereafter, respondent filed an arbitration suit

pursuant to the arbitration clause of its
agreement with petitioner. It contended that the
airing of WINS WEEKLY was made with
petitioner's prior approval. It also alleged that
petitioner only threatened to terminate their
agreement because it wanted to renegotiate the
terms thereof to allow it to demand higher fees.
Respondent also prayed for damages for
petitioner's alleged grant of an exclusive
distribution license to another entity, NHK (Japan
Broadcasting Corporation).5
The parties appointed Professor Alfredo F. Tadiar
to act as sole arbitrator. They stipulated on the
following issues in their terms of reference
(TOR)6:
1. Was the broadcast of WINS WEEKLY by
the claimant duly authorized by the
respondent [herein petitioner]?
2. Did such broadcast constitute a material
breach of the agreement that is a ground
for termination of the agreement in
accordance with Section 13 (a) thereof?
3. If so, was the breach seasonably cured
under the same contractual provision of
Section 13 (a)?
4. Which party is entitled to the payment
of damages they claim and to the other
reliefs prayed for?
xxx

xxx

xxx

The arbitrator found in favor of respondent. 7 He

held that petitioner gave its approval to
respondent for the airing of WINS WEEKLY as
shown by a series of written exchanges between
the parties. He also ruled that, had there really
been a material breach of the agreement,
petitioner should have terminated the same
instead of sending a mere notice to terminate
said agreement. The arbitrator found that
petitioner threatened to terminate the agreement
due to its desire to compel respondent to renegotiate the terms thereof for higher fees. He
further stated that even if respondent committed
a breach of the agreement, the same was
seasonably cured. He then allowed respondent to
recover temperate damages, attorney's fees and
one-half of the amount it paid as arbitrator's fee.

107

Petitioner filed in the CA a petition for review

under Rule 43 of the Rules of Court or, in the
alternative, a petition for certiorari under Rule 65
of the same Rules, with application for temporary
restraining order and writ of preliminary
injunction. It was docketed as CA-G.R. SP No.
81940. It alleged serious errors of fact and law
and/or grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the
arbitrator.
Respondent, on the other hand, filed a petition for
confirmation of arbitral award before the Regional
Trial Court (RTC) of Quezon City, Branch 93,
docketed as Civil Case No. Q-04-51822.
Consequently, petitioner filed a supplemental
petition in the CA seeking to enjoin the RTC of
Quezon City from further proceeding with the
hearing of respondent's petition for confirmation
of arbitral award. After the petition was admitted
by the appellate court, the RTC of Quezon City
issued an order holding in abeyance any further
action on respondent's petition as the assailed
decision of the arbitrator had already become the
subject of an appeal in the CA. Respondent filed a
motion for reconsideration but no resolution has
been issued by the lower court to date. 8
On February 16, 2005, the CA rendered the
assailed decision dismissing ABS-CBNs petition
for lack of jurisdiction. It stated that as the TOR
itself provided that the arbitrator's decision shall
be final and unappealable and that no motion for
reconsideration shall be filed, then the petition for
review must fail. It ruled that it is the RTC which
has jurisdiction over questions relating to
arbitration. It held that the only instance it can
exercise jurisdiction over an arbitral award is an
appeal from the trial court's decision confirming,
vacating or modifying the arbitral award. It
further stated that a petition for certiorari under
Rule 65 of the Rules of Court is proper in
arbitration cases only if the courts refuse or
neglect to inquire into the facts of an arbitrator's
award. The dispositive portion of the CA decision
read:
WHEREFORE, the instant petition is
hereby DISMISSED for lack of jurisdiction.
The application for a writ of injunction and
temporary
restraining
order
is
likewise DENIED. The Regional Trial Court
of Quezon City Branch 93 is directed to
proceed with the trial for the Petition for
Confirmation of Arbitral Award.

SO ORDERED.
Petitioner moved for reconsideration. The same
was denied. Hence, this petition.
Petitioner contends that the CA, in effect, ruled
that: (a) it should have first filed a petition to
vacate the award in the RTC and only in case of
denial could it elevate the matter to the CA via a
petition for review under Rule 43 and (b) the
assailed decision implied that an aggrieved party
to an arbitral award does not have the option of
directly filing a petition for review under Rule 43
or a petition for certiorari under Rule 65 with the
CA even if the issues raised pertain to errors of
fact and law or grave abuse of discretion, as the
case may be, and not dependent upon such
grounds as enumerated under Section 24
(petition to vacate an arbitral award) of RA 876
(the Arbitration Law). Petitioner alleged serious
error on the part of the CA.
The issue before us is whether or not an
aggrieved party in a voluntary arbitration dispute
may avail of, directly in the CA, a petition for
review under Rule 43 or a petition for certiorari
under Rule 65 of the Rules of Court, instead of
filing a petition to vacate the award in the RTC
when the grounds invoked to overturn the
arbitrators decision are other than those for a
petition to vacate an arbitral award enumerated
under RA 876.
RA 876 itself mandates that it is the Court of First
Instance, now the RTC, which has jurisdiction over
questions relating to arbitration,9 such as a
petition to vacate an arbitral award.
Section 24 of RA 876 provides for the specific
grounds for a petition to vacate an award made
by an arbitrator:
Sec. 24. Grounds for vacating award. - In
any one of the following cases, the
court must make an order vacating
the award upon the petition of any party
to the controversy when such party proves
affirmatively that in the arbitration
proceedings:
(a) The award was procured by corruption,
fraud, or other undue means; or
(b) That there was evident partiality or
corruption in the arbitrators or any of
them; or
108

(c) That the arbitrators were guilty of

misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and
material to the controversy; that one or
more of the arbitrators was disqualified to
act as such under section nine hereof, and
willfully refrained from disclosing such
disqualifications
or
of
any
other
misbehavior by which the rights of any
party have been materially prejudiced; or

could not find fault with their impartiality

and integrity. Evidently, the nullification
of the award rendered at the case at
bar was not made on the basis of any
of the grounds provided by law.
xxx

Adamson v. Court of Appeals10 gave ample

warning that a petition to vacate filed in the RTC
which is not based on the grounds enumerated in
Section 24 of RA 876 should be dismissed. In that
case, the trial court vacated the arbitral award
seemingly based on grounds included in Section
24 of RA 876 but a closer reading thereof
revealed otherwise. On appeal, the CA reversed
the decision of the trial court and affirmed the
arbitral award. In affirming the CA, we held:
The Court of Appeals, in reversing the trial
court's decision held that the nullification
of the decision of the Arbitration
Committee was not based on the grounds
provided by the Arbitration Law and that
xxx
private
respondents
(petitioners
herein) have failed to substantiate with any
evidence
their
claim
of
partiality.
Significantly, even as respondent judge
ruled against the arbitrator's award, he

xxx

It is clear, therefore, that the award

was vacated not because of evident
partiality of the arbitratorsbut because
the latter interpreted the contract in a way
which was not favorable to herein
petitioners and because it considered that
herein private respondents, by submitting
the controversy to arbitration, was seeking
to renege on its obligations under the
contract.

(d) That the arbitrators exceeded their

powers, or so imperfectly executed them,
that a mutual, final and definite award
upon the subject matter submitted to them
was not made.
Based on the foregoing provisions, the law itself
clearly provides that the RTC must issue an order
vacating an arbitral award only "in any one of the
. . . cases" enumerated therein. Under the legal
maxim in statutory construction expressio unius
est exclusio alterius, the explicit mention of one
thing in a statute means the elimination of others
not specifically mentioned. As RA 876 did not
expressly provide for errors of fact and/or law and
grave abuse of discretion (proper grounds for a
petition for review under Rule 43 and a petition
for certiorari under Rule 65, respectively) as
grounds for maintaining a petition to vacate an
arbitral award in the RTC, it necessarily follows
that a party may not avail of the latter remedy on
the grounds of errors of fact and/or law or grave
abuse of discretion to overturn an arbitral award.

xxx

xxx

xxx

xxx

It is clear then that the Court of Appeals

reversed the trial court not because the
latter reviewed the arbitration award
involved
herein,
but because
the
respondent appellate court found that
the trial court had no legal basis for
vacating
the
award. (Emphasis
supplied).
In cases not falling under any of the
aforementioned grounds to vacate an award, the
Court has already made several pronouncements
that a petition for review under Rule 43 or a
petition for certiorari under Rule 65 may be
availed of in the CA. Which one would depend on
the grounds relied upon by petitioner.
In Luzon Development Bank v. Association of
Luzon Development Bank Employees,11 the Court
held that a voluntary arbitrator is properly
classified as a "quasi-judicial instrumentality" and
is, thus, within the ambit of Section 9 (3) of the
Judiciary Reorganization Act, as amended. Under
this section, the Court of Appeals shall exercise:
xxx

xxx

xxx

(3) Exclusive appellate jurisdiction over all

final judgments, decisions, resolutions,
orders or awards of Regional Trial Courts
and
quasi-judicial
agencies, instrumentalities, boards or
commissions, including the Securities and
Exchange Commission, the Employees
Compensation Commission and the Civil
109

Service Commission, except those falling

within the appellate jurisdiction of the
Supreme Court in accordance with the
Constitution, the Labor Code of the
Philippines under Presidential Decree No.
442, as amended, the provisions of this Act
and of subparagraph (1) of the third
paragraph and subparagraph (4) of the
fourth paragraph of Section 17 of the
Judiciary Act of 1948. (Emphasis supplied)
As such, decisions handed down by voluntary
arbitrators fall within the exclusive appellate
jurisdiction of the CA. This decision was taken into
consideration in approving Section 1 of Rule 43 of
the Rules of Court.12 Thus:
SECTION 1. Scope. - This Rule shall apply
to appeals from judgments or final orders
of the Court of Tax Appeals and from
awards,
judgments,
final
orders
or
resolutions of or authorized by any quasijudicial agency in the exercise of its quasijudicial functions. Among these agencies
are the Civil Service Commission, Central
Board of Assessment Appeals, Securities
and Exchange Commission, Office of the
President, Land Registration Authority,
Social
Security
Commission,
Civil
Aeronautics Board, Bureau of Patents,
Trademarks and Technology Transfer,
National
Electrification
Administration,
Energy
Regulatory
Board,
National
Telecommunications
Commission,
Department of Agrarian Reform under
Republic Act Number 6657, Government
Service Insurance System, Employees
Compensation Commission, Agricultural
Inventions Board, Insurance Commission,
Philippine Atomic Energy Commission,
Board
of
Investments,
Construction
Industry
Arbitration
Commission,
and voluntary arbitrators authorized
by law. (Emphasis supplied)
This rule was cited in Sevilla Trading Company v.
Semana,13 Manila
Midtown
Hotel
v.
Borromeo,14 and Nippon Paint Employees UnionOlalia v. Court of Appeals.15 These cases held that
the proper remedy from the adverse decision of a
voluntary arbitrator, if errors of fact and/or law
are raised, is a petition for review under Rule 43
of the Rules of Court. Thus, petitioner's
contention that it may avail of a petition for
review under Rule 43 under the circumstances of
this case is correct.

As to petitioner's arguments that a petition for

certiorari under Rule 65 may also be resorted to,
we hold the same to be in accordance with the
Constitution and jurisprudence.
Section 1 of Article VIII of the 1987 Constitution
provides that:
SECTION 1. The judicial power shall be
vested in one Supreme Court and in such
lower courts as may be established by law.
Judicial power includes the duty of the
courts
of
justice to
settle
actual
controversies involving rights which are
legally demandable and enforceable,
and to determine whether or not there
has been a grave abuse of discretion
amounting to lack or excess of
jurisdiction on the part of any branch
or
instrumentality
of
the
Government. (Emphasis supplied)
As may be gleaned from the above stated
provision, it is well within the power and
jurisdiction of the Court to inquire whether any
instrumentality of the Government, such as a
voluntary arbitrator, has gravely abused its
discretion in the exercise of its functions and
prerogatives. Any agreement stipulating that "the
decision of the arbitrator shall be final and
unappealable" and "that no further judicial
recourse if either party disagrees with the whole
or any part of the arbitrator's award may be
availed of" cannot be held to preclude in proper
cases the power of judicial review which is
inherent in courts. 16 We will not hesitate to review
a voluntary arbitrator's award where there is a
showing of grave abuse of authority or discretion
and such is properly raised in a petition for
certiorari17 and there is no appeal, nor any plain,
speedy remedy in the course of law. 18
Significantly, Insular Savings Bank v. Far East
Bank and Trust Company19 definitively outlined
several judicial remedies an aggrieved party to
an arbitral award may undertake:
(1) a petition in the proper RTC to issue an
order to vacate the award on the grounds
provided for in Section 24 of RA 876;
(2) a petition for review in the CA under
Rule 43 of the Rules of Court on questions
of fact, of law, or mixed questions of fact
and law; and
110

(3) a petition for certiorari under Rule 65 of

the Rules of Court should the arbitrator
have acted without or in excess of his
jurisdiction or with grave abuse of
discretion amounting to lack or excess of
jurisdiction.

E. THE SOLE ARBITRATOR COMMITTED

SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS DISCRETION IN AWARDING ATTORNEY'S
FEES IN THE UNREASONABLE AMOUNT
AND
UNCONSCIONABLE
AMOUNT
OF P850,000.00.

Nevertheless, although petitioners position on

the judicial remedies available to it was correct,
we sustain the dismissal of its petition by the CA.
The remedy petitioner availed of, entitled
"alternative petition for review under Rule 43 or
petition for certiorari under Rule 65," was wrong.

F. THE ERROR COMMITTED BY THE SOLE

ARBITRATOR IS NOT A SIMPLE ERROR OF
JUDGMENT OR ABUSE OF DISCRETION. IT IS
GRAVE
ABUSE
OF
DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF
JURISDICTION.

Time and again, we have ruled that the remedies

of appeal and certiorari are mutually exclusive
and not alternative or successive. 20

A careful reading of the assigned errors reveals

that the real issues calling for the CA's resolution
were less the alleged grave abuse of discretion
exercised by the arbitrator and more about the
arbitrators appreciation of the issues and
evidence presented by the parties. Therefore, the
issues clearly fall under the classification of errors
of fact and law questions which may be passed
upon by the CA via a petition for review under
Rule 43. Petitioner cleverly crafted its assignment
of errors in such a way as to straddle both judicial
remedies, that is, by alleging serious errors of
fact and law (in which case a petition for review
under Rule 43 would be proper) and grave abuse
of discretion (because of which a petition for
certiorari under Rule 65 would be permissible).

Proper issues that may be raised in a petition for

review under Rule 43 pertain to errors of fact, law
or mixed questions of fact and law. 21 While a
petition for certiorari under Rule 65 should only
limit itself to errors of jurisdiction, that is, grave
abuse of discretion amounting to a lack or excess
of jurisdiction.22 Moreover, it cannot be availed of
where appeal is the proper remedy or as a
substitute for a lapsed appeal.23
In the case at bar, the questions raised by
petitioner in its alternative petition before the CA
were the following:
A. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS DISCRETION IN RULING THAT THE
BROADCAST OF "WINS WEEKLY" WAS DULY
AUTHORIZED BY ABS-CBN.
B. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS DISCRETION IN RULING THAT THE
UNAUTHORIZED BROADCAST DID NOT
CONSTITUTE MATERIAL BREACH OF THE
AGREEMENT.
C. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS DISCRETION IN RULING THAT WINS
SEASONABLY CURED THE BREACH.
D. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS
DISCRETION
IN
RULING
THAT
TEMPERATE DAMAGES IN THE AMOUNT
OF P1,166,955.00 MAY BE AWARDED TO
WINS.

It must be emphasized that every lawyer should

be familiar with the distinctions between the two
remedies for it is not the duty of the courts to
determine under which rule the petition should
fall.24 Petitioner's ploy was fatal to its cause. An
appeal taken either to this Court or the CA by the
wrong
or
inappropriate
mode
shall
be
dismissed.25Thus, the alternative petition filed in
the CA, being an inappropriate mode of appeal,
should have been dismissed outright by the CA.
WHEREFORE, the petition is hereby DENIED.
The February 16, 2005 decision and August 16,
2005 resolution of the Court of Appeals in CA-G.R.
SP No. 81940 directing the Regional Trial Court of
Quezon City, Branch 93 to proceed with the trial
of the petition for confirmation of arbitral award
is AFFIRMED. Costs against petitioner. SO
ORDERED.
16. G.R. No. 154885
2008

March 24,

DIESEL
CONSTRUCTION
INC., Petitioner, vs.UPSI
HOLDINGS, INC., Respondent.

CO.,
PROPERTY
111

G.R. No. 154937

UPSI PROPERTY HOLDINGS, INC., Petitioner,
vs. DIESEL CONSTRUCTION CO., INC. and
FGU INSURANCE CORP., Respondents.
DECISION
VELASCO, JR., J.:
The Case
Before the Court are these petitions for review
under Rule 45 separately interposed by Diesel
Construction Co., Inc. (Diesel) and UPSI Property
Holdings, Inc. (UPSI) to set aside the
Decision1 dated April 16, 2002 as partly modified
in a Resolution2 of August 21, 2002, both
rendered by the Court of Appeals (CA) in CA-G.R.
SP No. 68340, entitled UPSI Property Holdings,
Inc. v. Diesel Construction Co., Inc., and FGU
Insurance Corporation. The CA Decision modified
the Decision dated December 14, 2001 of the
Arbitral Tribunal of the Construction Industry
Arbitration Commission (CIAC) in CIAC Case No.
18-2001, while the CA Resolution granted in part
the motion of Diesel for reconsideration and
denied a similar motion of UPSI.
The Facts
The facts, as found in the CA Decision under
review, are as follows:
On August 26, 1995, Diesel, as Contractor, and
UPSI, as Owner, entered into a Construction
Agreement3(Agreement)
for
the
interior
architectural construction works for the 14th to
16th
floors
of
the
UPSI
Building
3
Meditel/Condotel Project (Project) located on Gen.
Luna St., Ermita, Manila. Under the Agreement, as
amended, Diesel, for PhP 12,739,099, agreed to
undertake the Project, payable by progress
billing.4 As stipulated, Diesel posted, through FGU
Insurance Corp. (FGU), a performance bond in
favor of UPSI.5
Inter alia, the Agreement contained provisions on
contract
works
and
Project
completion,
extensions of contract period, change/extra works
orders, delays, and damages for negative
slippage.
Tasked to oversee Diesels work progress were:
Grace S. Reyes Designs, Inc. for interior design
and architecture, D.L. Varias and Associates as

Construction Manager, and Ryder Hunt Loacor,

Inc. as Quantity Surveyor.6
Under the Agreement, the Project prosecution
proper was to start on August 2, 1999, to run for
a period of 90 days or until November 8, 1999.
The parties later agreed to move the
commencement date to August 21, 1999, a
development necessitating the corresponding
movement of the completion date to November
20, 1999.
Of particular relevance to this case is the section
obliging the contractor, in case of unjustifiable
delay, to pay the owner liquidated damages in
the amount equivalent to one-fifth (1/5) of one (1)
percent of the total Project cost for each calendar
day of delay.7
In the course of the Project implementation,
change orders were effected and extensions
sought. At one time or another, Diesel requested
for extension owing to the following causes or
delaying factors: (1) manual hauling of materials
from the 14th to 16th floors; (2) delayed supply
of marble; (3) various change orders; and (4)
delay in the installation of shower assembly. 8
UPSI, it would appear, disapproved the desired
extensions on the basis of the foregoing causes,
thus putting Diesel in a state of default for a
given contract work. And for every default
situation, UPSI assessed Diesel for liquidated
damages in the form of deductions from Diesels
progress payments, as stipulated in the
Agreement.9
Apparently irked by and excepting from the
actions taken by UPSI, Diesel, thru its Project
manager, sent, on March 16, 2000, a letter notice
to UPSI stating that the Project has been
completed as of that date. UPSI, however,
disregarded the notice, and refused to accept
delivery of the contracted premises, claiming that
Diesel had abandoned the Project unfinished.
Apart therefrom, UPSI withheld Diesels 10%
"retention money" and refused to pay the unpaid
balance of the contract price.10
It is upon the foregoing factual backdrop that
Diesel filed a complaint before the CIAC, praying
that UPSI be compelled to pay the unpaid balance
of the contract price, plus damages and
attorneys fees. In an answer with counterclaim,
UPSI denied liability, accused Diesel of
abandoning a project yet to be finished, and
prayed for repayment of expenses it allegedly
112

incurred for completing the Project and for a

declaration that the deductions it made for
liquidated damages were proper. UPSI also sought
payment of attorneys fees.11
After due hearing following a protracted legal
sparring, the Arbitral Tribunal of the CIAC, on
December 14, 2001, in CIAC Case No. 18-2001,
rendered judgment for Diesel, albeit for an
amount lesser than its original demand. To be
precise, the CIAC ordered UPSI to pay Diesel the
total amount of PhP 4,027,861.60, broken down
as follows: PhP 3,661,692.60, representing the
unpaid balance of the contract price; and PhP
366,169 as attorneys fees. In the same decision,
the CIAC dismissed UPSIs counterclaim 12 and
assessed it for arbitration costs in the amount of
PhP 298,406.03.13
In time, UPSI went to the CA on a petition for
review, docketed as CA-G.R. SP No. 68340.
Eventually, the appellate court rendered its
assailed Decision dated April 16, 2002, modifying
that of the CIAC, thus:
WHEREFORE, premises considered, the petition is
GRANTED and the questioned Decision is
MODIFIED in this wise:
a. The claim of [UPSI] for liquidated
damages is GRANTED to the extent of
PESOS: ONE MILLION THREE HUNDRED
NINE THOUSAND AND FIVE HUNDRED
(P1,309,500.00) representing forty-five
(45) days of delay at P29,100 per diem;
b. We hold that [Diesel] substantially
complied with the Construction Contract
and is therefore entitled to one hundred
percent (100%) payment of the contract
price. Therefore, the claim of [Diesel] for
an unpaid balance of PESOS: TWO MILLION
FOUR HUNDRED FORTY-ONE THOUSAND
FOUR HUNDRED EIGHTY TWO and SIXTY
FOUR centavos (P2,441,482.64), which
amount already includes the retention on
the additional works or Change Orders, is
GRANTED, minus liquidated damages. In
sum, [UPSI] is held liable to [Diesel] in the
amount of PESOS: ONE MILLION ONE
HUNDRED THIRTY ONE THOUSAND NINE
HUNDRED EIGHTY TWO and sixty four
centavos
(P1,131,982.64), with legal
interest until the same is fully paid;
c. The parties are liable equally for the
payment of arbitration costs;

d. All claims for

DISMISSED; and

attorneys

fees

are

e. Since there is still due and owing from

UPSI an amount of money in favor of
Diesel, respondent FGU is DISCHARGED as
surety for Diesel.
Costs de officio.
SO ORDERED.14
Therefrom, Diesel and UPSI each sought
reconsideration. On August 21, 2002, the CA
issued its equally assailed Resolution denying
reconsideration to UPSI, but partially granting
Diesels motion, disposing as follows:
WHEREFORE, the Motion for Reconsideration of
[Diesel] is partially GRANTED. The liquidated
damages are hereby reduced to P1,146,519.00
(45 days multiplied by P25,478.20 per diem).
However, in accordance with the main opinion,
We hold that [UPSI] is liable to [Diesel] for the
total amount of P3,661,692.64, representing the
unpaid balance of the contract price plus the tenpercent retention, from which the liquidated
damages, must, of course, be deducted. Thus, in
sum, as amended, We hold that petitioner is still
liable to respondent Diesel in the amount of
P2,515,173.64, with legal interest until the same
is fully paid.
The main opinion, in all other respects, STANDS.
SO ORDERED.15
Hence, these separate petitions are before us.
Per its Resolution of March 17, 2003, the Court
ordered the consolidation of the petitions.
The Issues
In its petition in G.R. No. 154885, Diesel raises
the following issues:
1. Whether or not the [CA] has the
discretion, indeed the jurisdiction, to pass
upon the qualifications of the individual
members of the CIAC Arbitral Tribunal and
declare them to be non-technocrats and
not exceptionally well-versed in the
construction industry warranting reversal
and nullification of the tribunals findings.
113

2. Whether or not the [CA] may intervene

to annul the findings of a highly specialized
agency, like the CIAC, on the ground that
essentially the question to be resolved
goes to the very heart of the substantiality
of evidence, when in so doing, [CA] merely
substituted its own conjectural opinion to
that of the CIAC Arbitral Tribunals wellsupported findings and award.
3. Whether or not the [CA] erred in its
findings, which are contrary to the findings
of the CIAC Arbitral Tribunal.16
On the other hand, in G.R. No. 154937, UPSI
presents the following issues:
I
Whether or not portion of the Decision
dated April 16, 2002 of the Honorable [CA]
denying additional expenses to complete
the unfinished and abandoned work of
[Diesel], is null and void for being contrary
to clean and convincing evidence on
record.
II
Whether or not portion of the Decision x x
x of the [CA] finding delay of only forty five
(45) days is null and void for being not in
accord with contractual stipulations upon
which the controversy arise.
III
Whether or not the resolution of the
Honorable Court of Appeals denying the
herein
petitioners
motion
for
reconsideration and partially granting the
respondents motion for reconsideration is
likewise null and void as it does not serve
its purpose for being more on expounding
than rectifying errors. 17
The issues shall be discussed in seriatim.
The Courts Ruling
We resolve to modify the assailed CA Decision.
First Issue
Diesel maintains that the CA erred in its
declaration that it may review the CIACs decision

considering the doctrine on the binding effect of

conclusions of fact of highly specialized agencies,
such as the CIAC, when supported by substantial
evidence.
The above contention is erroneous and, as
couched, misleading.
As is noted, the CA, in its assailed resolution,
dismissed as untenable Diesels position that the
factual findings of the CIAC are binding on and
concludes the appellate court. The CA went to
clarify, however, that the general rule is that
factual conclusions of highly specialized bodies
are given great weight and even finality when
supported by substantial evidence. Given this
perspective, the CA was correct in holding that it
may validly review and even overturn such
conclusion of facts when the matter of its being
adequately supported by substantial evidence
duly adduced on record comes to the fore and is
raised as an issue.
Well-established jurisprudence has it that "[t]he
consequent policy and practice underlying our
Administrative Law is that courts of justice should
respect the findings of fact of said administrative
agencies, unless there is absolutely no evidence
in support thereof or such evidence is clearly,
manifestly and patently insubstantial."18
There can be no serious dispute about the
correctness of the CAs above posture. However,
what the appellate court stated later to belabor
its point strikes the Court as specious and
uncalled for. Wrote the CA:
This dictum finds greater application in the case
of the CIAC because x x x as pointed out by
petitioner in its Comment, the doctrine of primary
jurisdiction relied upon by [Diesel] is diluted by
the indubitable fact that the CIAC panel x x x is
not at all composed of technocrats, or persons
exceptionally well-versed in the construction
industry. For instance, its chair x x x is a
statistician; another member, x x x a former
magistrate, is a member of the Bar. Doubtless,
these two are preeminent in their fields, and their
competence and proficiency in their chosen
professions are unimpeachable. However, when it
comes to determining findings of fact with
respect to the matter before Us, the said panel
which they partly comprise cannot claim to have
any special advantage over the members of this
Court.19

114

The question of whether or not the findings of

fact of the CIAC are supported by substantial
evidence has no causal connection to the
personal qualifications of the members of the
arbitration
panel.
Surely,
a
persons
undergraduate or postgraduate degrees, as the
case may be, can hardly be invoked as the sole,
fool proof basis to determine that persons
qualification to hold a certain position. Ones
work experiences and attendance in relevant
seminars and trainings would perhaps be the
more important factors in gauging a persons
fitness to a certain undertaking.
Correlatively, Diesel, obviously having in mind the
disputable presumption of regularity, correctly
argues that highly specialized agencies are
presumed to have the necessary technical
expertise in their line of authority. In other words,
the members of the Arbitral Tribunal of the CIAC
have in their favor the presumption of possessing
the necessary qualifications and competence
exacted by law. A party in whose favor the legal
presumption exists may rely on and invoke such
legal presumption to establish a fact in issue. One
need not introduce evidence to prove that the
fact for a presumption is prima facie proof of the
fact presumed.20
To set the records straight, however, the CA did
not cast aspersion on the competence let alone
the bona fides of the members of the Arbitral
Tribunal to arbitrate. In context, what the
appellate court saidin reaction to Diesels
negative commentary about the CAs expertise
on construction mattersis that the said
members do not really enjoy a special advantage
over the members of the CA in terms of fleshing
out the facts from the evidence on record.
In any event, the fact remains that the CA stands
justified in reviewing the CIAC decision.
Second and Third Issues
The next two issues, being interrelated, shall be
discussed jointly.
Diesel submits that the CA, in reaching its
decision, substituted its own conjectural opinion
to that of the CIACs well-grounded findings and
award.
Even as Diesels submission has little to
commend itself, we deem it prudent to address
its concern by reviewing the incongruent

determinations of the CIAC and CA and the

factual premises holding such determinations
together.
As it were, the CA reduced the award for unpaid
balance of the contract cost from PhP
3,661,692.60, as earlier fixed by the CIAC, to PhP
2,441,482.64, although it would consider the
reduction and revert to the original CIAC figure.
Unlike the CIAC which found the award of
liquidated damages to be without basis, the CA
was of a different disposition and awarded UPSI
PhP 1,309,500, only to reduce the same to PhP
1,146,519 in its assailed resolution. Also, the CA
struck out the CIAC award of PhP 366,169 to
Diesel for attorneys fees. Additionally, the CIACs
ruling making UPSI alone liable for the costs of
arbitration was modified by the CA, which
directed UPSI and Diesel to equally share the
burden.
The CIAC found Diesel not to have incurred delay,
thus negating UPSIs entitlement to liquidated
damages. The CA, on the other hand, found
Diesel to have been in delay for 45 days.
In determining whether or not Diesel was in
delay, the CIAC and CA first turned on the
question of Diesels claimed entitlement to have
the Project period extended, an excusable delay
being chargeable against the threshold 90-day
completion period. Both were one in saying that
occurrence of certain events gave Diesel the right
to an extension, but differed on the matter of
length of the extension, and on the nature of the
delay, that is, whether the delay is excusable or
not. The CA deemed the delay, and the resulting
extension of 14 days, arising from the manual
hauling of materials, as undeserved. But the CIAC
saw it otherwise for the reason that Frederick W.
Crespillo, the witness UPSI presented to refute
the allegation of Diesels entitlement to time
extension for the manual hauling of materials,
was incompetent to testify on the issue. As CIAC
observed, Crespillo lacked personal knowledge of
the real situation at the worksite.
The CIACs reasoning, however, is flawed,
assuming that the onus rested on UPSI, instead of
on Diesel, to prove that the delay in the execution
of the Project was excusable. Diesel explained
that there was no place for its own hoisting
machine at the Project site as the assigned
location was being used by the General
Contractor, while the alternative location was not
feasible due to power constraint. Moreover,
Diesel could not use the site elevator of the
115

General Contractor as its personnel were only

permitted to use the same for one hour every day
at PhP 600 per hour.
The provisions in the Agreement on excusable
delays read:
2.3 Excusable delays: The Contractor shall
inform the owner in a timely manner, of
any delay caused by the following:
2.3.a Acts of God, such as storm, floods or
earthquakes.
2.3.b Civil disturbance,
revolutions, insurrection.

such

as

riots,

2.3.c Any government acts, decrees,

general orders or regulations limiting the
performance of the work.
2.3.d Wars (declared or not).
2.3.e Any delays initiated by the Owner or
his personnel which are clearly outside the
control of the Contractor.
2.3.1 Delays caused by the foregoing shall
be excusable. A new schedule or
adjustments in contract time shall be
negotiated with the Owner. As time is of
the essence of this agreement, all other
delays shall not be excusable.21
As may be noted, a common thread runs among
the events listed above, that is, the delaying
event is unforeseeable and/or its occurrence is
beyond the control of Diesel as contractor. Here,
the lack of a location to establish Diesels own
hoisting machine can hardly be tagged as a
foreseeable event. As the CA aptly observed:
[U]nder the terms of the contract, it is Diesel that
would formulate the schedule to be followed in
the completion of the works; therefore, it was
encumbent upon Diesel to take into account all
factors that would come into play in the course of
the project. From the records it appears that the
General Contractor x x x had been in the
premises ahead of Diesel; hence it would have
been a simple matter for Diesel to have conferred
with the formers officer if the use of its
equipment would be viable. Likewise, it would not
have been too much trouble for Diesel to have
made a prior request from UPSI for the use of its
freight elevator in the face of the denial thereof,

it could have made the necessary remedial

measures x x x. In other words, those delays were
foreseeable on the part of Diesel, with the
application of even ordinary diligence. But Diesel
did all of those when construction was about to
commence. Therefore, We hold that the delays
occasioned by Diesels inability to install its
hoisting machine x x x [were] attributable solely
to Diesel, and thus the resultant delay cannot be
charged against the ninety-day period for the
termination of the construction.22
There can be no quibbling that the delay caused
by the manual hauling of materials is not
excusable and, hence, cannot validly be set up as
ground for an extension. Thus, the CA excluded
the delay caused thereby and only allowed Diesel
a total extension period of 85 days. Such
extension, according to that court, effectively
translated to a delay of 45 days in the completion
of the project. The CA, in its assailed decision,
explained why:
7. All told, We find, and so hold, that [Diesel] has
incurred in delay. x x x However, under the
circumstances wherein UPSI was responsible for
some of the delay, it would be most unfair to
charge Diesel with two hundred and forty (240)
days of delay, so much so that it would still owe
UPSI, even after liquidated damages have eaten
up the retention and unpaid balance, the amount
of [P4,340,000.00]. Thus, based on Our own
calculations, We deem it more in accord with the
spirit of the contract, as amended, x x x to assess
Diesel with an unjustifiable delay of forty-five (45)
days only; hence, at the rate of 1/5 of one
percent as stated in the contract, [or at
P1,309,500.00], which should be deducted from
the total unpaid balance of [P2,441,482.64],
which amount already includes the retention on
the additional works or Change Orders. 23
The CA, in its questioned resolution, expounded
on how it arrived at the figure of 45-day delay in
this wise:
7. x x x We likewise cannot give Our assent to the
asseveration of [Diesel] that Our calculations as
to the number of days of delay have no basis. For
indeed, the same was arrived at after taking a
holistic view of the entire circumstances
attendant to the instant case. x x x
But prescinding from the above, the basis for Our
ruling should not be hard to discern. To disabuse
the mind of [Diesel] that the forty-five day delay
was plucked from out of the blue, allow Us to let
116

the records speak. The records will show that

while the original target date for the completion x
x x was 19 November 1999 x x x, there is a total
of eighty-five (85) days of extension which are
justifiable and sanctioned by [UPSI], to wit: thirty
(30) days as authorized on 27 January 2000 by
UPSIs Construction Manager x x x; thirty (30)
days as again consented to by the same
Construction Manager on 24 February 2000 x x x;
and twenty-five (25) days on 16 March 2000 by
Rider Hunt and Liacom x x x. The rest of the days
claimed by Diesel were, of course, found by Us to
be unjustified in the main opinion. Hence, the
project should have been finished by February 12,
2000. However, by 22 March 2000, as certified to
by Grace S. Reyes Designs, Inc. the project was
only 97.56% finished, meaning while it was
substantially finished, it was not wholly finished.
By 25 March 2000, the same consultant
conditionally accepted some floors but were still
punch listed, so that from 12 February 2000 to 25
March 2000 was a period of forty-one (41) days.
Allowing four (4) more days for the punch listed
items to be accomplished, and for the "general
cleaning" mentioned by Grace S. Reyes Designs,
Inc., to be done, which to Us is a reasonable
length of time, equals forty-five (45) days.
This is why We find the [conclusion] made by the
CIAC, x x x that there was no delay whatsoever in
the work done by [Diesel], too patently absurd for
Us to offer Our unconditional assent.24
Aside from the fact that the CA seemingly
assumed contradictory positions in the span of
two paragraphs, its holding immediately adverted
to above is patently erroneous. The CA
completely failed to factor in the change orders of
UPSI
to
Dieselthe
directives
effectively
extending the Project completion time at the
behest of UPSI.
Section
V
of
the
Agreement
subject Change Orders reads:

on

the

V. CHANGES IN SCOPE OF WORK AND EXTRA

WORK
Any changes or extra work in the SCOPE OF
WORK
recommended
by
the
INTERIOR
DESIGNER/ARCHITECT or directed and approved
by the OWNER shall be presented to the
CONTRACTOR. Within the shortest time possible,
the CONTRACTOR x x x shall also inform the
OWNER if such changes shall require a new
schedule and/or revised completion date.

The Parties shall then negotiate mutually

agreeable terms x x x. The CONTRACTOR shall
not perform any change order or extra work until
the covering terms are agreed upon [in writing
and signed by the parties].25
Pursuant thereto, UPSI issued Change Order (CO)
Nos. 1 to 4 on February 3, 2, 8, and 9, 2000
respectively. Thereafter, Diesel submitted a
Schedule
of
Completion
of
Additional
Works26 under which Diesel committed to
undertake CO No. 1 for 30 days from February 10,
2000; CO No. 2 for 21 days from January 6, 2000;
CO No. 3 for 15 days, subject to UPSIs
acceptance of Diesels proposal; and CO No. 4 for
10 days after the receipt of the items from UPSI.
The CIAC found that the COs were actually
implemented on the following dates:
CO No. 1 February 9 to March 3, 2000
CO No. 3 February 24 to March 10, 2000
CO No. 4 March 16 to April 7, 200027
Hence, as correctly held by the CIAC, UPSI, no
less, effectively moved the completion date,
through the various COs, to April 7, 2000.
Moreover, as evidenced by UPSIs Progress Report
No. 19 for the period ending March 22, 2000,
Diesels scope of work, as of that date, was
already 97.56% complete.28 Such level of work
accomplishment would, by any rational norm, be
considered as substantial to warrant full payment
of the contract amount, less actual damages
suffered by UPSI. Article 1234 of the Civil Code
says as much, "If the obligation had been
substantially performed in good faith, the obligor
may recover as though there had been a strict
and complete fulfillment, less damages suffered
by the obligee."
The fact that the laborers of Diesel were still at
the work site as of March 22, 2000 is a reflection
of its honest intention to keep its part of the
bargain and complete the Project. Thus, when
Diesel attempted to turn over the premises to
UPSI, claiming it had completed the Project on
March 15, 2000, Diesel could no longer be
considered to be in delay. Likewise, the CIAC cited
the Uniform General Conditions of Contract for
Private Construction (CIAP Document 102),
wherein it is stated that no liquidated damages
for delay beyond the completion time shall
117

accrue after the date of substantial completion of

the work.29
In all, Diesel cannot be considered as in delay
and, hence, is not amenable under the
Agreement for liquidated damages.
As to the issue of attorneys fees, Diesel insists
that bad faith tainted UPSIs act of imposing
liquidated damages on account of its (Diesels)
alleged delay. And, this prompted Diesel to file its
petition for arbitration. Thus, the CIAC granted
Diesel an award of PhP 366,169 as attorneys
fees. However, the CA reversed the CIAC on the
award, it being its finding that Diesel was in
delay.
The Court resolves to reinstate the CIACs award
of attorneys fees, there being sufficient
justification for this kind of disposition. As earlier
discussed, Diesel was not strictly in delay in the
completion of the Project. No valid reason,
therefore, obtains for UPSI to withhold the
retention money or to refuse to pay the unpaid
balance of the contract price. Indeed, the
retention and nonpayment were, to us, as was to
the CIAC, resorted to by UPSI out of whim, thus
forcing the hand of Diesel to sue to recover what
is rightfully due. Thus, the grant of attorneys
fees would be justifiable under Art. 2208 of the
Civil Code, thus:
Article 2208. In the absence of stipulation,
attorneys fees and expenses of litigation x x x
cannot be recovered, except:
xxxx
(5) Where the defendant acted in gross and
evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable
claim.
And for the same reason justifying the award of
attorneys fees, arbitration costs ought to be
charged against UPSI, too.
Fourth Issue
UPSI urges a review of the factual basis for the
parallel denial by the CIAC and CA of its claim for
additional expenses to complete the Project. UPSI
states that the reality of Diesel having abandoned
the Project before its agreed completion is
supported by clear and convincing evidence.

The Court cannot accord the desired review. It is

settled rule that the Court, not being a trier of
facts, is under no obligation to examine, winnow,
and weigh anew evidence adduced below. This
general rule is, of course, not absolute. In
Superlines Transportation Company, Inc. v.
Philippine National Construction Company, the
Court enumerated the recognized exceptions to
be:
x x x (1) when the findings are grounded entirely
on speculation, surmises or conjectures; (2) when
the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when
the findings of facts are conflicting; (6) when in
making its findings the [CA] went beyond the
issues of the case, or its findings are contrary to
the admissions of both the appellant and the
appellee; (7) when the findings are contrary to
the trial court; (8) when the findings are
conclusions without citation of specific evidence
on which they are based; (9) when the facts set
forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are
premised on the supposed absence of evidence
and contradicted by the evidence on record; and
(11) when the Court of Appeals manifestly
overlooked certain relevant facts not
disputed by the parties, which, if properly
considered,
would
justify
a
different
conclusion.30 (Emphasis supplied.)
In the instant case, the factual findings of the
CIAC and CA, with regard to the completion of the
Project and UPSIs entitlement to recover
expenses allegedly incurred to finish the Project,
do not fall under any one of these exceptions. As
things stand, the factual findings of the CIAC and
CA are supported by evidence presented during
the hearing before the Arbitral Tribunal. Consider
what the CIAC wrote:
This Tribunal finds overwhelming evidence to
prove that accomplishment as of the alleged
"period of takeover" was 95.87% as of March 3,
2000 and increased to 97.56% on March 15, 2000
based on Progress Report # 18. x x x This is
supported by the statement of [UPSIs] witness,
Mr. Crespillo x x x where he conceded that such
admissions and statements bound [UPSI, the
Owner]. By that time, [Diesel] had substantially
completed the project and only needed to correct
the items included in the punchlist.31
118

The CA seconded what the CIAC said, thus:

6. Neither are We prepared to sustain UPSIs
argument that Diesel left the work unfinished and
pulled-out all of its workmen from the project.
This claim is belied by the assessment of its own
Construction Manager in Progress Report No. 19
for the period "ending 22 March 2000," wherein it
was plaintly stated that as of that period, with
respect to Diesel, there were still twenty-three
laborers on site with the project "97.56%"
complete x x x. This indicates that the contracted
works of Diesel were substantially completed with
only minor corrections x x x, thus contradicting
the avowal of UPSI that the work was abandoned
in such a state that necessitated the engagement
of another contractor for the project to be
finished. It was therefore not right for UPSI to
have declined the turn-over and refused the full
payment of the contract price, x x x.32
Given the 97.56% work accomplishment tendered
by Diesel, UPSIs theory of abandonment and of
its having spent a sum to complete the work
must fall on its face. We can concede
hypothetically that UPSI undertook what it
characterized as "additional or rectification"
works on the Project. But as both the CIAC and CA
held, UPSI failed to show that such "additional or
rectification" works, if there be any, were the
necessary result of the faulty workmanship of
Diesel.
The Court perceives of no reason to doubt, much
less disturb, the coinciding findings of the CIAC
and CA on the matter.

dated August 21, 2002 of the CA are MODIFIED,

as follows:
(1) The award for liquidated damages
is DELETED;
(2) The award to Diesel for the unpaid
balance of the contract price of PhP
3,661,692.64 is AFFIRMED;
(3) UPSI shall pay the costs of arbitration
before the CIAC in the amount of PhP
298,406.03;
(4) Diesel is awarded attorneys fees in the
amount of PhP 366,169; and
(5) UPSI is awarded damages in the
amount of PhP 310,834.01, the same to be
deducted from the retention money, if
there still be any, and, if necessary, from
the amount referred to in item (2)
immediately above.
In summary, the aggregate award to Diesel shall
be PhP 3,717,027.64. From this amount shall be
deducted the award of actual damages of PhP
310,834.01 to UPSI which shall pay the costs of
arbitration in the amount of PhP 298,406.03.
FGU is released from liability for the performance
bond that it issued in favor of Diesel. No costs. SO
ORDERED.

The foregoing notwithstanding and considering

that Diesel may only be credited for 97.56% work
accomplishment, UPSI ought to be compensated,
by way of damages, in the amount corresponding
to the value of the 2.44% unfinished portion
(100% 97.56% = 2.44%). In absolute terms,
2.44% of the total Project cost translates to PhP
310,834.01. This disposition is no more than
adhering to the command of Art. 1234 of the Civil
Code.
The fifth and sixth issues have already been
discussed earlier and need not detain us any
longer.
WHEREFORE,
Diesels
petition
is PARTIALLY GRANTED and UPSIs Petition
is DENIED with
qualification.
The
assailed
Decision dated April 16, 2002 and Resolution
119